Micron Earnings: Great Guidance but Stock Now Looks Fairly Valued

Key Morningstar Metrics for Micron MU

• Fair Value Estimate: $110
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of Micron Earnings

We maintain our $110 fair value estimate for shares of no-moat Micron Technology as we hold our medium-term forecast steady even after tremendous August quarter results. Micron’s quarterly results came in at or above the high end of its guidance ranges, and its November quarter guidance beat our model. The firm benefits from a broad and strong upcycle in memory chip demand, aided by AI-related demand. We believe this upswing should continue through calendar 2025. Still, we expect growth to decelerate through 2025 and forecast cyclicality for Micron in the long term, which informs our no-moat rating.

Micron’s stock has been seeing downward pressure since its last earnings report three months ago, with a number of analyst downgrades citing concerns of oversupply in DRAM chips. We don’t share these concerns in the short term and believe Micron’s strong guide aligns with our view for tight supply to fuel another year of strong growth in fiscal 2025. The market responded positively to guidance, with shares up as much as 14% after hours. The stock is now trading close to our fair value estimate.

August quarter revenue rose 93% year over year and 14% sequentially to $7.75 billion. DRAM continues to drive Micron’s results, but DRAM and NAND showed more than 90% year-over-year growth as these markets recover from the steep cyclical downturn seen in fiscal 2023. We believe DRAM growth is broad-based but supplemented by robust demand for high-bandwidth memory chips that serve AI applications. HBM is still a small minority of total revenue today, but we forecast it to rise above 10% of Micron’s revenue in the next two years.

Looking Ahead to Micron’s Fiscal 2025

November quarter guidance was impressive, implying 12% sequential revenue growth and 300 basis points of gross margin expansion at the midpoints. We believe growth will be driven by growth for shipments and pricing in fiscal 2025. Rising prices also contribute to our expectations for meaningful margin expansion in fiscal 2025.

We expect sequential revenue growth and margin expansion to continue for Micron throughout fiscal 2025, but forecast it to decelerate through the year. All in, we forecast close to 50% revenue growth in fiscal 2025, following more than 60% growth in fiscal 2024 and reaching a record level for Micron. In fiscal 2026 and beyond, we expect DRAM and NAND to revert to more normal dynamics of annual pricing declines being offset by strong shipments, creating more moderate growth.