Micron Is the NVIDIA of Memory Chips: Here’s Why

Key Points

• Micron's Q2 results were boosted by end-market normalization and the shift to AI-enabled computing.
• The guidance is also impressive and may be cautious given the trends. 
• Analysts are upgrading the stock and raising their price target, leading the market to new highs. 

Micron Technology NASDAQ: MU is perfectly positioned to follow in the footsteps of AI leader NVIDIA NASDAQ: NVDA. Where NVIDIA commands the bulk of data center market share and, by extension, the AI accelerator market, Micron commands a large portion of the memory chip market, which AI also aids. The takeaway is that NVIDIA is leading the first wave of the AI revolution, and Micron is now in a prime position to lead the second.

That wave is the embedding and application of AI across the IoT from our PCs to mobile and connected devices. It is a much bigger wave and will sustain growth for a longer period. 

Micron Stock Price Surged 20% Because of NVIDIA-Like Results

Analysts expected solid results from Micron because of normalizing market and inventory conditions, but the FQ2 report exceeded all expectations. The rise of AI compounded end-market normalization to drive double-digit growth in all product categories and business segments. 

Regarding the product categories, DRAM chip sales surged by 53% and were led by a 77% increase in NAND. Regarding business segments, all segments grew at least 28%, led by a 78% gain in Storage, a 70% increase in Mobile, and a 59% gain in Computing. The weakest segment is Embedded at 28%, but it is expected to accelerate over the coming quarters. 

The market-moving details are the 58% increase in topline revenue, the 875 basis points of outperformance, and the surprise profits. Micron has been working through an inventory glut and reset, posting significant losses over the last year, and was not expected to return to profitability until the 2nd fiscal half.

As it is, top-line strength and internal efficiencies led the operating cash flow to grow 4X YOY and for losses to reverse. The $0.42 in adjusted earnings is not only up from last year's loss but exceeded the consensus forecast reported by Marketbeat.com by $0.66. 

Micron Is Building Business Momentum in 2024

Mircon’s results are impressive enough, but the guidance will keep the stock moving higher. The Q2 results led management to raise guidance for the year by upping the expectation for Q3—the new forecast projects revenue growth at 76% or 1000 basis points above consensus with margin strength. The adjusted earnings are forecast at $0.45, more than double the consensus forecast. Assuming the company continues to build momentum, it should raise guidance again at the end of Q3. 

The latest estimates for PC demand are only one driver for the business. PC shipments are expected to grow in 2024, with gains centered on the AI market. AI-enabled PC shipments are expected to run near 18% of the market in 2024 and then more than double to 40% in 2025 as the upgrade cycle gains momentum. 

Analysts Lead Micron to a New All-Time High

The analysts are impressed by Micron’s results and guidance and are lifting sentiment and price targets because of it. Marketbeat tracks over a dozen revisions following the release; all include a sentiment upgrade, price target revision, or both. Argus and Fox Advisors upgraded the stock to Buy from Neutral equivalents; the consensus price target is up about 20% in two days, leading the market. 

The consensus estimate puts Micron trading near $110, which aligns with the post-release action, but most of the new targets are in the $120 to $160 range, with one notable exception. Rosenblatt Securities set the new high target; it is $225 and more than double the current market price.

Micron Stock Can Double From Its New High

The surge in Micron stock is significant because it sets a new all-time high above the 2000 DotCom market bubble. The move is a pivot above a trading range that could lead it to advance by $95 or more to above $200. The minimum target is near $150, derived by projecting the magnitude of the 2020-2024 trading range above the critical resistance point.