Micron Stock Slumps Despite Strong Earnings

Micron Technology shares are losing ground despite the memory chip company reporting better-than-expected financial results for the quarter.

Results were strong, but Wall Street’s expectations apparently got ahead of reality. Revenue guidance for the company’s August quarter matched estimates—and investors were likely expecting more.

Shares were off 7.2% in after-hours trading.

For the fiscal third quarter ended in May, Micron reported revenue of $6.8 billion, up 82% and ahead of both the midpoint of the company’s guidance range at $6.6 billion and the Wall Street consensus as tracked by FactSet at $6.67 billion.

Adjusted profit in the quarter was 62 cents a share, ahead of both the company’s target of 45 cents and the Street consensus of 48 cents. Under generally accepted accounting principles, the company earned 30 cents a share, ahead of the company’s own forecast of 17 cents. Gross margin on an adjusted basis was 28.1%, above guidance of 26.5%.

“Robust AI demand and strong execution enabled Micron to drive 17% sequential revenue growth, exceeding our guidance range in fiscal Q3,” Micron CEO Sanjay Mehrotra said. “We are excited about the expanding AI-driven opportunities ahead, and are well positioned to deliver a substantial revenue record in fiscal 2025.”

DRAM revenue increased 13% sequentially in the quarter, while NAND increased 32%. Average selling prices increased by about 20% for both DRAM and NAND.

For the quarter ending in August, Micron is projecting revenue of $7.6 billion at the midpoint of its guidance range, a hair above consensus at $7.59 billion. It expects an adjusted profit of $1.08 a share, ahead of the Street’s call for $1.02. The Street sees full year fiscal 2024 revenue of $24.8 million, with profits of 98 cents a share.

Micron’s strong growth reflects a combination of improving demand for PCs and smartphones, the ebbing of excess inventory at automotive and industrial customers, and a demand surge tied to artificial intelligence.

In a presentation prepared for the company’s quarterly earnings conference call, Micron noted that data center demand revenue increased by more than 50% sequentially, driven by AI. Micron added that while near-term demand tied to PCs and smartphones was “only steady,” robust AI-driven data center demand is creating tight supplies, spurring higher prices.

In an interview with Barron’s, Micron chief business officer Sumit Sadana noted that the share of the company’s business coming from data center applications hit an all-time high in the quarter—and the contribution from data center is expected to increase further in 2025. Sadana added that Micron believes that aside from Nvidia, the company has more AI exposure than any other chip manufacturer.

Micron should continue to benefit from accelerating demand for memory-hungry AI servers and it will receive an additional boost in coming quarters from AI-capable PCs and smartphones that require more memory than their current-generation counterparts.

“As we look ahead to 2025,” Micron said in the company’s earnings slide deck, “demand for AI PCs and AI smartphones, and continued growth of AI in the data center, create a favorable set up that gives us confidence that we can deliver a substantial revenue record in FY ‘25, with significant improved profitability underpinned by our ongoing portfolio shift to higher margin products.”

In one surprise note, Micron said that PC and smartphone customers have built up additional memory inventory due to rising prices, the anticipated growth in AI PCs and smartphones, and expectations of tight supply as a growing portion of both NAND and DRAM chips go to growing data-center demand. Sadana said that PC and smartphone customers fear a “crowding out effect” as Micron’s mix shifts to AI.

Micron also said in the deck that demand for solid-state drives is growing from cloud customers, “driven primarily by AI training and inference infrastructure,” as well as “the start of a recovery of traditional compute and storage infrastructure demand.”

Micron said that PC unit volumes remain on track to grow in the low single digits in calendar 2024, with smartphone units still expected to grow in the low to mid single digits. The company sees bit demand growth in the midteens this year for both DRAM and NAND. In the medium term, the company sees midteens growth for DRAM, and high-teens growth for NAND.

For the August 2025 fiscal year, consensus calls for revenue of $37.3 billion, up 50%, with a profit of $9.01 a share. Wall Street sees fiscal 2026 revenue of $43.1 billion, which would be up 16%, with profit of $12.04 a share.

The company said it expects about $8 billion in capital spending in fiscal 2024, and that outlays will “materially” increase in fiscal 2025 to about the mid-30s as a percentage of revenue. Sadana said that CapEx spending reached $3 billion in the May quarter, and that average quarterly spending would be meaningfully higher than that in fiscal 2025. That implies a total in the $13 billion range for the year, which would be up more than 60% from fiscal year 2024.

The higher spending in part reflect the company’s construction of new fabs in both Idaho and upstate New York.

Micron said the new Idaho fab won’t add meaningfully to supply until fiscal 2027, and that the New York fab won’t be a significant contributor until fiscal 2028 or later.

Ahead of the report, Micron shares were up 66% this year and 117% over the past 12 months. The stock closed at $142 Wednesday.

Analysts had ratcheted up estimates and price targets headed into the quarter. DRAM pricing has been rising, driven in particular by strong demand for high bandwidth memory, used in AI servers. Micron said it has sold out of HBM for both this year and for 2025.

On another note, Sadana said that Micron was able to mitigate most of the impact on its business in the quarter from the recent earthquake in Taiwan. He declined to quantify the impact on results.

In a note previewing the quarterly report, Wolfe Research analyst Chris Caso repeated his Outperform rating on Micron shares and boosted his target price to $200 from $150. He lifted his earnings estimates, citing “stronger industry conditions and optimism regarding HBM.” Caso sees a case where Micron eventually hits a profit of $20 a share, with demand for HBM driving up pricing for conventional DRAM.

“The plausibility of that scenario is what keeps us bullish on MU’s stock despite its recent run,” Caso wrote.

Write to Eric J. Savitz at [email protected]