Micron Technology Inc.: Heading Towards a Turnaround

Micron Technology Inc. is showing signs of a positive shift after predicting the bottom in a tough market, coinciding with the surge in artificial intelligence (AI) technology this year. Investors are eagerly awaiting the opportunity to witness the impact firsthand.

On Wednesday, Micron (MU) is set to announce its fiscal fourth-quarter earnings after the market closes, and analysts are optimistic about the company’s direction. In a recently released note titled “Earnings Preview: For a Change…”, BMO Capital analyst Ambrish Srivastava expressed his expectation for a shift in focus towards the eventual upturn. Micron aims to capitalize on opportunities in the data center market through its product portfolio.

Srivastava, who rates Micron as outperform and has set a price target of $80, remains particularly concerned about the trajectory of Micron’s gross margins. As they have remained negative for several quarters, he believes it is crucial to closely monitor pricing, capital expenditures, and free cash flow.

While the memory market has experienced weakness recently, Deutsche Bank analyst Sidney Ho upgraded Micron to a buy rating in anticipation of AI servers providing a much-needed boost. Additionally, Ho suggests that DRAM prices have started to improve earlier than expected.

Micron specializes in manufacturing DRAM and NAND memory chips. DRAM, commonly used in PCs and data centers, is vital for their smooth operation. On the other hand, NAND chips serve as flash memory for smaller devices such as smartphones and USB drives.

Key Focus: Micron’s 1-beta DRAM chips, specifically designed for data centers, are becoming increasingly sought after due to their ability to power large-language models and generative AI. Notably, Open AI’s ChatGPT, backed by Microsoft Corp., greatly benefits from these advancements. To meet the rising demand, Micron initiated shipments of the 1-beta chips to select smartphone manufacturers and chipset partners in November of last year.

Micron’s Role in the AI Market

In July, Micron and Nvidia Corp. announced their collaboration, revealing that Nvidia was utilizing Micron’s HBM3 Gen2 high-bandwidth memory chips in its AI data-center products.

Micron’s CEO, Sanjay Mehrotra, acknowledged that the memory-chip market had reached its bottom in the company’s latest earnings report. However, he cautioned that weakness in the smartphone and PC sectors could potentially hinder AI advancements.

The company managed to break a losing streak during the previous quarter by reporting revenue that surpassed Wall Street’s expectations. Before this turnaround, Micron experienced its largest quarterly loss ever and had to write off over $1.4 billion in inventory.

According to FactSet’s survey, analysts anticipate that Micron will report a fourth-quarter loss of $1.15 per share on revenue of $3.95 billion. Looking ahead to fiscal 2024, they anticipate a loss of 77 cents per share on revenue of $20.34 billion.

Following a disastrous quarter in March, where the company suffered a loss of $2.12 per share (or $1.91 on an adjusted basis), Micron has shown signs of recovery.

Out of the 37 analysts covering Micron, 28 have assigned buy-grade ratings, while seven have hold ratings and two have sell ratings. The average price target for Micron is estimated at $81.27, as reported by FactSet.

Micron’s stock has climbed 37.2% year to date, outperforming both the PHLX Semiconductor Index (SOX), which has gained 33.9%, and the S&P 500 index (SPX), which has risen by 13%. Additionally, it has experienced a 32.4% surge in the Nasdaq Composite (COMP).

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