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Micron Technology (MU) will report quarterly earnings results for Q4 after the close of trading today, and the market will be looking for evidence that demand for memory chips is improving. A sign of improving demand for the chips will go a long way toward repairing sentiment in technology stocks that have been hammered by soaring bond yields. Micron has fallen -2.9% this month, faring better than the -6% fall in the Nasdaq 100 ($IUXX) (QQQ) on expectations the market for memory semiconductor products is showing signs of a recovery.
Semiconductor chip makers have suffered from a collapse in orders for memory chips this year amid slack demand for smartphones and personal computers. Although neither of those markets is showing a substantial rebound, the excess inventory of memory chips is falling. The shrinking memory chip inventory may help balance supply and demand and allow chip makers to take advantage of increased orders for their highest-performing products needed for artificial intelligence (AI) related computer systems.
Most analysts are optimistic that Micron Technology has weathered the storm of excess memory chip inventories and is set to benefit from increased demand for its AI products. Micron stock is up +36% this year, and analysts expect the company’s revenue to expand again in the first quarter after the huge drop in sales in the last fiscal year. According to Bloomberg data, only two of the 38 analysts covering the stock have a sell recommendation, with most recommending buying the stock. Micron shares are priced at 3.5 times sales projected over the next 12 months, compared with an average of 2 times over the past ten years.
A key area for growth in Micron Technology is its production of the high-bandwidth memory chip (HBM), a type of chip needed for AI software training. That software training, conducted in large data centers using Nvidia’s (NVDA) accelerator chips, needs rapid access to huge amounts of information. Memory chips that support processors by acting as short-term storage must offer up that data as fast as possible to eliminate a possible bottleneck in computation.
Some analysts are concerned that the recent surge in demand for AI-related applications will lead to a shortage of HBM chips. Mizuho Securities said there is currently insufficient HBM supply to meet demand in 2024. Those higher-performing chips will bring better pricing and margins for Micron Technology. However, Morgan Stanley said any improvements in pricing for memory chips have come because Micron and its peers have slowed production due to excess inventory. That’s not the same as demand rebounding, and Morgan Stanley predicts Micron’s losses are poised to continue into 2024, saying, “We see the stock already discounting strong conditions not yet in evidence.”
On the date of publication, Rich Asplund 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.
