Micron Technology shares edged lower in early Tuesday trading after a top Wall Street analyst reiterated his outlook and price target amid a sharp market pullback for the AI memory chip maker.
Micron (MU) shares have booked solid gains this year as investors bet on a long-term demand story for its high-bandwidth memory chips, which help power AI systems, but have lost nearly $40 billion in value since Micron posted a muted revenue forecast in late June.
The Boise, Idaho-based group told investors that current-quarter sales would rise 90% from the same period last year to around $7.6 billion, thanks in part to demand for its new HBM3E chips that are now being built into both Nvidia's (NVDA) H200 processors and its newly developed Blackwell systems.
But the soaring revenue gains failed to impress Wall Street, given the high valuations and searing stock price gains that AI-related companies have enjoyed so far this year, and the stock has fallen some 30% from its mid-June peak.
Wolfe Research analyst Chris Caso, however, sees Micron commanding greater pricing power for its legacy DRAM memory chips, thanks to its HBM developments and market-share gains.
Micron's DDR5 random access memory, released in 2020, also provides more performance with less power than its predecessors, while solid-state drives are used in flash-memory storage on laptops and desktop computers.
DRAM pricing power
"We believe the indirect impact of [high bandwidth memory] on DRAM pricing will be greater than the direct impact from HBM revenue," said Caso, who reiterated his 'outperform' rating and $200 price target for Micron in a note published Tuesday.
"The company anticipates over $100 million in near-term HBM3E revenue, has reiterated their target to achieve their typical DRAM market share in [calendar year 2025], and expects a multibillion-dollar contribution in [fiscal 2025] as they ramp up 12hi HBM3E production,'" Caso argued.
Related: Analysts revise Micron stock price targets after earnings
Micron told investors in June that it expected to generate "multiple billions of dollars in revenue from HBM in fiscal 2025," which ends in August of next year. MU added that its share of the newly emerging market will be "commensurate with our overall DRAM market share" sometime next year.
"We are making significant strides toward expanding our HBM customer base in calendar 2025, as we design-in our industry-leading HBM technology with major HBM customers," said CEO Sanjay Mehrotra said in a June 26 statement. "We have sampled our 12-high HBM3E product and expect to ramp it into high-volume production in calendar 2025 and increase in mix throughout 2025."
Capex surge
Capital spending will need to increase significantly, however, to enable that kind of production ramp. And Micron, which forecasts around $8 billion in capital expenditure for the current fiscal year, sees that figure rising to around the "mid-30%s range of revenue for fiscal 2025."
At current forecasts, that would translate to capex of $13.5 billion, a near 70% increase from fiscal 2024 levels.
"Although we expect the meaningful [capital spending] increase in fiscal 2025 will drive some investor concern, it's important to note that over half of the expected increase is from infrastructure spending, which isn’t expected to contribute to bit production until fiscal 2027 at the earliest," said Caso at Wolfe Research.
Related: Analyst revisits Micron stock price target after presentation
"The remainder of capex will be directed towards technology migration and HBM rather than expanding bit capacity," he added. "We think this all supports the plausible case for $20 earnings power."
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Micron shares were marked 0.01% lower in early trading to change hands at $108.63, a move that would peg the stock's year-to-date gain at around 27.5%.
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