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Shares of Micron Technology (MU) rallied by more than 14% in a single trading session last week following its fiscal Q4 results. The company also forecast higher-than-expected sales for Q1 of fiscal 2025 (which ended in November), and the tech giant said that strong demand for its memory chips used in artificial intelligence (AI) computing is driving top-line growth.
MU stock has pulled back 34% from its 52-week highs, but the stock is up by about 52.5% over the past year, and 21.5% on a year-to-date basis.
After its latest quarterly report, is this semiconductor stock a good buy at current levels? Here's a closer look.
Micron's Strong Performance in Fiscal Q4 of 2024
Micron offers high-bandwidth memory (HBM), chips and is cashing in on robust demand as Big Tech giants such as Microsoft (MSFT), Alphabet (GOOG) (GOOGL), Amazon (AMZN), Meta (META), Tesla (TSLA), and Apple (AAPL) are investing heavily to gain a first-mover advantage in the AI race. These HBM chips are used in AI processors designed by market bellwether Nvidia (NVDA).
Moreover, Micron is only one of three companies that produce HBM chips, a type of dynamic random-access memory (DRAM) chip critical for the graphics processing units (GPUs) that power AI platforms, such as ChatGPT.
Earlier this year, Micron disclosed that its HBM chips were sold out through 2025. During the Q4 earnings call, Micron CEO Sanjay Mehrotra stated, “Demand from data center customers continues to be strong and customer inventory levels are healthy.”
Given its midpoint guidance, Micron expects to report record sales of $8.7 million in fiscal Q1 of 2025. It also forecasts gross margins at 39.5%, compared to 22.3% in fiscal 2024. Comparatively, Wall Street estimated Micron to report revenue of $8.28 billion in Q1, with an adjusted gross margin of 37.7%.
Further, management forecast adjusted earnings of $1.74 per share at the midpoint, higher than estimates of $1.65 per share, for the current quarter.
The rapidly expanding addressable AI market has helped Micron shield itself from an inventory glut in legacy markets, such as personal computers and smartphones. Notably, analysts at Summit Insights forecast that the AI PC market will require up to 30% more DRAM, acting as another tailwind for the chip maker.
Is Micron Stock Undervalued?
The semiconductor industry is cyclical, and is on the cusp of a turnaround due to AI-related tailwinds that should also translate to margin expansions. Micron’s sales growth accelerated to 93% to $7.75 billion in fiscal Q4, higher than its 81% growth in Q3, indicating that chip demand is ramping up. Its compute and networking revenue more than doubled to $3 billion in the July quarter.
Analysts tracking Micron expect sales to rise from $25 billion in fiscal 2024 to $38 billion in fiscal 2025, ramping further to $45.6 billion in 2026. Its adjusted earnings are forecast to expand from $1.3 per share in 2024 to $8.95 per share in 2025 and $13.06 in 2026.
So, priced at 12x forward earnings, Micron stock is cheap, given its leadership position in the HBM segment and widening profit margins. According to Micron, the total market for HBM data center chips will touch $25 billion next year, up from just $4 billion in 2023.
MU is still a “strong buy” on Wall Street. Out of the 27 analysts covering Micron stock, 23 recommend “strong buy,” two recommend “moderate buy,” one recommends “hold,” and one recommends “strong sell.”
The average 12-month target price is $147.11, indicating an upside potential of almost 42% from current levels.
On the date of publication, Aditya Raghunath 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.
