Micron's Stock Could Have Its Best Day in 13 Years. What’s Behind the Big Move?

Earlier this year, Micron Technology Inc. was riding high as a key player in the artificial intelligence (AI) boom. However, since reaching its peak in June, the company’s stock has dropped by 38%, largely due to concerns about weaker performance in areas outside of its AI-related business. Despite this decline, Micron’s latest earnings report has rekindled optimism on Wall Street, demonstrating that the company is still benefiting significantly from the growing demand for AI technologies.

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One of the key takeaways from the report is that while certain segments of Micron's business, such as personal computers and mobile devices, continue to struggle due to high inventory levels, the demand for AI-driven data centers has been strong enough to offset these weaknesses. As a result, Micron’s stock surged 16.6% in Thursday morning trading following better-than-expected guidance for the upcoming November quarter. This performance surprised investors, who had feared the company might miss expectations. Instead, the company exceeded forecasts, which bolstered Wall Street's confidence in Micron's future.

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If Micron’s stock maintains its upward trajectory through the end of Thursday’s trading session, it could mark the company’s biggest single-day percentage increase since November 16, 2011, when the stock rose by 23.4%. According to Dow Jones Market Data, any gain exceeding 15.7% would set a new record for Micron's strongest post-earnings reaction.

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Needham analyst N. Quinn Bolton commented on Micron’s “solid beat and raise,” attributing the performance to favorable pricing and high demand for data-center products. He pointed out that shipments of dynamic random-access memory (DRAM) were now expected to be higher than what management had previously indicated, primarily driven by the continued robust demand for AI servers. Traditional servers have also begun to recover, contributing to the positive outlook. However, Bolton noted that other segments, such as personal computers, smartphones, and automotive, remain sluggish. Despite this, Micron expects the trends in the PC and mobile markets to improve by spring 2024.

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Bolton rates Micron’s stock a buy and has set a price target of $140, reflecting his confidence in the company’s ability to navigate the current market dynamics successfully.

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Similarly, Krish Sankar, an analyst at TD Cowen, echoed these sentiments. He acknowledged the ongoing inventory challenges faced by PC and smartphone customers, as well as the softness in end-market demand. However, Sankar believes that the mid-cycle period for memory—spanning now through the second quarter of 2024—may not be as severe as initially feared. The strength from data-center customers has played a significant role in mitigating the impact of weaker demand in other areas. Sankar also emphasized that the balance between supply and demand remains relatively stable, particularly as high-bandwidth memory (HBM) continues to account for a significant portion of semiconductor-equipment budgets.

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Sankar upgraded his price target for Micron, raising it from $115 to $135, while maintaining a buy rating on the stock. His optimism reflects confidence that the company’s pivot towards high-bandwidth memory, which is crucial for AI applications, will continue to drive growth.

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Jordan Klein, a desk-based analyst at Mizuho, also noted Micron’s strategic shift toward high-bandwidth memory and away from its traditional markets in personal computers and smartphones. He pointed out that high-bandwidth memory is increasingly being used in AI applications and that it comes with higher gross margins, making it a more lucrative product for Micron. Klein highlighted that a growing portion of Micron's output is being custom-designed with set pricing, further indicating the company’s move toward more profitable segments of its business.

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Meanwhile, Matt Bryson of Wedbush expressed particular interest in Micron’s projection for $25 billion in high-bandwidth-memory demand in 2024, a substantial increase from the $5 billion expected for 2023. Bryson emphasized that if Micron’s estimates of real end-user demand are accurate, the likelihood of oversupply in the industry remains low. He also noted that with the majority of spending and capacity growth focused on supporting high-bandwidth memory requirements, the risk of a cyclical oversupply in the broader industry is minimal.

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Bryson maintains an outperform rating on Micron and has set a target price of $140, aligning with other analysts’ positive outlook for the company.

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In summary, despite challenges in non-AI-related sectors like PCs and smartphones, Micron is thriving thanks to strong demand for its AI-driven data-center products. The company’s focus on high-bandwidth memory and the growing importance of AI applications are expected to continue driving revenue and profitability. Analysts remain bullish on Micron’s future, with multiple firms raising their price targets and maintaining positive ratings on the stock. This optimism is a testament to Micron's successful adaptation to evolving market trends and its ability to capitalize on the increasing demand for AI-related technologies.

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