AI has been responsible for the growth of many names in the semiconductor space and has once again made its presence felt in the latest quarterly report from Micron (NASDAQ:MU).
In its May quarter (Q3) results, the memory giant beat expectations in both revenue and net income. Revenue came in at $6.81 billion, representing a substantial 81.6% year-over-year increase, while beating the Street forecast by $140 million. The company attributed much of its sales growth to AI, with demand driving its data center revenue growth by 50% quarter over quarter. At the other end of the scale, EPS of $0.62 beat prognosticators’ forecasts of $0.09.
As for the outlook, Micron forecast fourth-quarter revenue of $7.60 billion (±$200 million), compared to consensus of $7.58 billion, while adjusted EPS is expected reach $1.08 (± $0.08) against a call of $1.04 from the Stock Exchange.
In a constrained peak supply environment, the company expects DRAM and NAND prices to increase sequentially through the second half and into 2025, driven by demand for AI servers driving growth in HBM/DDR5 and enterprise SSDs.
That said, the strong results prompted a lukewarm initial reaction from investors, based on higher revenue expectations for the fourth quarter guide. However, looking through the documents, JP Morgan’s Harlan Sur, a 5-star analyst ranked in the top 1% of Street equity professionals, has nothing but good things to say about the company’s prospects.
“We believe the team is well positioned to capture memory content on powerful accelerated compute/AI server deployments with HBM3e capacity already sold out through calendar year 2025 and we believe the team is starting to see demand visibility into calendar year 2026,” the 5-star analyst explained. “AI is also driving demand for their enterprise SSD (eSSD) products. Gross margins for both HBM3e and eSSD are both accretive to their respective segments and we believe this should structurally increase their profitability profile in combination with cyclical demand/supply driven pricing increases.”
As the market continues to “underestimate revenue/margin/earnings improvement,” Sur believes the stock “is likely to continue to outperform” through 2024 and 2025. As such, the analyst raised his price target from $130 to $180, suggesting shares could gain 36% over the next year. Sur’s rating remains at Overweight (i.e. Buy). (To watch Sur’s track record, click here)
Sur is just one of several analysts currently raising their price target for Micron. The Street’s current average price target stands at $167, leaving room for a 12-month return of 26%. Based on a lopsided mix of 23 Buys versus 2 Holds, the stock boasts a Strong Buy consensus rating. (See Micron Stock Forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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