One Takeaway From Micron's Earnings Release That Could Lead to a Post-earnings Gain

Shares of Broadcom Inc. and Marvell Technology Inc. have experienced significant gains following their optimistic recent forecasts, presenting an intriguing dynamic for Micron Technology Inc. ahead of its earnings report set for Wednesday. According to one analyst, this could create a pivotal moment for Micron.

‍

Mizuho desk-based analyst Jordan Klein noted on Monday that, while Wall Street has shown increasing enthusiasm for Broadcom and Marvell in the wake of their earnings reports, long-only funds have been shifting away from the memory sector. At the same time, hedge funds have adopted a notably bearish stance on Micron’s stock. This sentiment has led Klein to take a “very bullish” position on Micron going into its earnings announcement.

‍

However, Klein suggested that any potential post-earnings rally in Micron shares might not have lasting power. He recommended covering short positions ahead of the report but expressed a more cautious outlook for the stock as the first quarter of next year approaches. Klein mentioned that hedge fund managers he has spoken to are planning to short the stock if it experiences a surge post-earnings, citing concerns over near-term pricing pressures for dynamic random-access memory (DRAM).

‍

Klein expects Micron to report results that align with Wall Street’s consensus estimates but anticipates that its quarterly guidance may fall short of expectations. Still, investors will be closely monitoring a few critical factors, including the possibility of improving gross margins and the ramp-up of high-bandwidth memory (HBM), which is essential for artificial intelligence (AI) applications.

‍

In his analysis, Klein highlighted Micron’s challenges in maintaining momentum. He pointed to the company’s previous earnings report, which triggered an initial spike in its stock price that quickly fizzled out. “As long as data points and sell-side reports emphasize soft DRAM and NAND pricing trends, Micron’s stock is unlikely to outperform,” Klein explained.

‍

Although some investors may be hoping for a dramatic post-earnings rally similar to Broadcom’s 24% surge after its report, Klein tempered expectations. He does not foresee Micron experiencing a comparable reaction, given the current market dynamics and the company’s challenges.

‍

Micron’s stock showed some strength on Monday morning, rising 7.5% to become the second-best performer among S&P 500 constituents. However, the outlook remains uncertain as analysts weigh in with mixed opinions.

‍

Citi analyst Christopher Danely also provided his perspective on Micron in a Monday note, predicting that both the company’s results and its guidance would likely fall “slightly” below Wall Street’s expectations. Danely acknowledged excess DRAM inventory in the PC and handset markets, which together account for about half of Micron’s projected fiscal 2024 sales. However, he noted that this oversupply is expected to clear by spring and is being somewhat mitigated by strength in the data center market. Danely maintained a “buy” rating on Micron and reiterated a $250 price target.

‍

Investors are particularly interested in Micron’s potential to capitalize on the AI revolution, especially through its high-bandwidth memory, which plays a crucial role in supporting AI workloads. With competitors like Broadcom and Marvell already benefiting from AI-driven demand, Micron’s ability to demonstrate progress in this area could be a critical driver for its stock performance.

‍

Still, the broader concerns surrounding DRAM and NAND pricing trends weigh heavily on investor sentiment. Weak pricing in these segments could overshadow any positive developments in AI-related memory products. Klein’s caution aligns with the broader uncertainty about whether Micron can maintain competitive momentum in an industry grappling with cyclical challenges and inventory overhang.

‍

The anticipation surrounding Micron’s earnings report underscores the broader semiconductor sector’s significance in the evolving technology landscape. As AI applications continue to reshape the market, companies like Micron are striving to align their product portfolios with this growth trend. However, near-term headwinds, including pricing pressures and inventory imbalances, remain obstacles to consistent performance.

‍

While Micron’s stock has shown resilience in the lead-up to its earnings, investors will be scrutinizing its forward guidance and strategic positioning to determine its longer-term potential. Whether Micron can join the ranks of semiconductor leaders benefiting from AI-driven demand remains an open question, with Wednesday’s earnings report poised to offer crucial insights.

‍