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After a tough 2023, the semiconductor market has been recovering strongly, driven by rising demand across various industries and the excitement around artificial intelligence (AI). The Semiconductor Industry Association (SIA) reports that global semiconductor sales grew in July for the fourth straight month, with the Americas seeing a notable 40.1% annual sales increase.
Despite the strong fundamentals, the PHLX Semiconductor Index ($SOX) has corrected by 10% over the past five days, hit by skepticism about slowing AI investments and economic troubles in China. Still, brokerage firm Citi is upbeat, citing the SIA’s July sales figures as a promising sign of recovery.
The firm’s top pick is leading memory chipmaker Micron Technology, Inc. (MU), which should benefit from surprisingly resilient pricing for dynamic random access memory (DRAM). With MU shares down sharply from their June highs, the current weakness in semiconductor stocks could be an opportunity to buy the dip in Micron.
About Micron Technology Stock
Founded in 1978, Micron Technology, Inc. (MU) is a leading manufacturer of innovative memory and storage solutions, providing essential tech for industries like computing, networking, and mobile communications. Boasting a market cap of $99 billion, this powerhouse crafts cutting-edge DRAM, NAND Flash, and SSDs, making essential components for today’s digital world.
Shares of Micron have gained 21.4% over the past 52 weeks, on pace with the S&P 500 Index's ($SPX) returns. However, MU has pulled back 45% from its June highs of $157.54, and now trades flat on a YTD basis.
Priced at 4.61 times sales, Micron Technology trades at a discount to many of its large-cap semiconductor peers, such as Texas Instruments (TXN) and Advanced Micro Devices, Inc. (AMD).
Along with its low price tag, Micron continues rewarding shareholders. On July 23, it paid a quarterly dividend of $0.115 per share, bringing its annualized payout to $0.46 per share with a 0.51% yield. What makes this more impressive is the company’s 28.87% payout ratio, leaving plenty of room for growth and potential dividend hikes.
Micron’s Q3 Beats Wall Street Projections
Micron reported standout fiscal Q3 earnings results on June 26, blowing past Wall Street’s expectations with an 81.6% revenue surge to $6.8 billion, driven by strong demand for memory and storage in the booming AI space. Its adjusted earnings rebounded to $0.62, a massive jump from last year’s $1.43 loss, topping forecasts.
Fueling this success was Micron’s focus on high-margin products like High Bandwidth Memory (HBM), raking in over $100 million in HBM3E revenue with impressive margins. HBM’s importance in AI systems, providing superior performance and energy efficiency, cements Micron’s leadership in the market. Plus, its data center SSD revenue also hit record highs, doubling sequentially amid robust AI demand across DRAM and NAND.
Despite these wins, Micron’s shares plummeted 7.1% on news of in-line revenue guidance for $7.6 billion. Investors wanted more, overshadowing Micron’s outlook for positive free cash flow in Q4. While Micron’s future looks bright, challenges like tight memory supply and the risks tied to high-margin products like HBM loom ahead.
Analysts tracking Micron Technology predict EPS of $0.61 in fiscal 2024, bouncing back from its 2023 loss, with the bottom line projected to surge to $8.84 in fiscal 2025.
What Do Analysts Expect for Micron Technology Stock?
Citi analyst Christopher Danely remains bullish on semiconductors, even as investors have punished the group to start September. The analyst notes SIA data showing that global semiconductor industry sales totaled $53.1 billion in July, representing an increase of nearly 3% sequentially and a gain of almost 18.7% year over year.
Against this backdrop, Micron remains Citi’s top pick. Thanks to soaring DRAM pricing, up 22% month-over-month, Danely says Micron is well-positioned - particularly with DRAM prices forecast to jump 66% year-over-year in 2024, and 14% in 2025.
Analysts are upbeat overall about MU stock’s prospects, with a consensus “Strong Buy” rating. Among the 28 analysts covering the stock, 25 are highly bullish with a “Strong Buy,” two advise a “Moderate Buy,” and one suggests a “Hold.”
The mean price target for MU of $160.93 implies a potential upside of about 87.3% from current levels. The Street-high estimate of $225 suggests the stock could rally as much as 161%.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
