Here's the good news on Micron even as stock heads for worst drop in two years

By Emily Bary

High-bandwidth memory is becoming a rapidly growing part of Micron's business

Given all the excitement going into Micron Technology Inc.'s latest earnings report, the company's in-line revenue outlook for the current quarter wasn't enough to satisfy investors.

Micron shares (MU) are off 7.4% in midday trading Thursday, despite results for the most recent quarter that came in better than expected and showcased how the company is seeing artificial-intelligence demand energize its business. The stock is on track for its largest single-day percentage drop since it fell 7.5% on Sept. 13, 2022.

Read: Micron's stock falls after earnings as revenue forecast fails to pack big upside

Still, despite the post-earnings selloff, Micron bulls saw reason to cheer as they examined how high-bandwidth memory - a technology that's proving important for AI - is manifesting in Micron's results.

"HBM will continue to be sold out through next year, with the company expecting billions of dollars in sales from the reported $100 million in the May quarter," Rosenblatt Securities analyst Hans Mosesmann wrote in a note to clients. "Management continues to see over 20% bit share in HBM by 2026, which is remarkable considering it was essentially zero last year."

Mosesmann remains encouraged by HBM's potential to reverberate across the broader memory landscape, as "the more HBM wafers started, the fewer bits of DRAM are made for other varietals." That's notable because it could further supply constraints, which in turn helps pricing.

He rates Micron shares a buy with a $225 target price.

Needham's N. Quinn Bolton also saw encouraging signals in the HBM commentary.

"Longer-term, we were interested to hear HBM4 allows for the customization of base logic die," he wrote. "This would essentially lock customers into that custom supply, and is an aggressive counter against the "memory is a commodity" bear case."

He has a buy rating on Micron shares, and he boosted his target price to $150 from $120 after the report.

Opinion: Micron investors will have to wait for 2025 for a bigger AI payoff

Citi Research analyst Christopher Danely posited that Micron's outlook looks conservative as he reiterated his own bullish view on the stock, which includes a buy rating and $175 target price. He thinks there are multiple reasons why Micron could see its gross margins expand during each quarter of next calendar year.

"The improving mix includes the ramp of HBM to several billion in sales in [calendar 2025]," he wrote, while noting that Micron is anticipating strong demand for high-margin dynamic random-access memory products in the server market, as well as solid-state drives for the data center. "Micron is also expecting continued supply tightness into C25 due to limited production growth and wafer loss from HBM," he added.

See also: Nvidia is 'both king and kingmaker,' and these chip stocks could pop in its wake

Wedbush's Matt Bryson admitted that Micron's forecast "didn't quite meet our more lofty expectations," but he cheered the improvement in business fundamentals.

"Part of our positive thesis around memory is our believe that the industry is being very cautious around bringing new capacity on-line," he wrote. "Micron's guidance and capex outlook very much fits this thesis."

Bryson has an outperform rating on Micron's stock, along with a $170 target price.

-Emily Bary

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06-27-24 1232ET

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