Should You Buy, Sell or Hold Micron Stock Ahead of Q4 Earnings?
Micron Technology, Inc. MU is slated to report fourth-quarter fiscal 2024 results after market close on Sept. 25.
The company projects fiscal fourth-quarter revenues of $7.6 billion (+/- $200 million). The Zacks Consensus Estimate for the top line is pegged at $7.64 billion, which implies strong year-over-year growth of 90.5%.
Meanwhile, Micron estimates adjusted earnings of $1.08 (+/-8 cents). The consensus mark for the bottom line has been revised upward by 2 cents to $1.10 per share over the past 60 days, which indicates a robust improvement from the year-ago quarter’s loss of $1.07.
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The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 73.2%.
Micron Technology, Inc. Price and EPS Surprise
Micron Technology, Inc. price-eps-surprise | Micron Technology, Inc. Quote
Let’s see how things have shaped up before this announcement.
Factors Shaping Micron’s Upcoming Results
Micron’s fourth-quarter results are expected to get a significant boost from the rising demand for memory chips, driven by the increasing adoption of graphics processing unit (GPU)-enabled artificial intelligence (AI) servers. As datacenter operators expand their capabilities with generative AI and large language models, powered by GPUs, memory becomes a critical component. This surge in demand for AI servers is likely to have bolstered Micron’s revenues during the to-be-reported quarter.
An additional factor supporting Micron's performance is the improving supply-demand balance in the memory chip market. For several quarters, Micron had been struggling due to excess inventory across various sectors, which weighed on its financial results. However, the company has seen better conditions over the past three quarters, allowing an increase in prices for DRAM and NAND memory chips, which are core to its business.
The Zacks Consensus Estimate for DRAM revenues is pegged at $5.26 billion for the fourth quarter, which indicates a year-over-year increase of approximately 91%. The consensus mark for NAND revenues stands at $2.31 billion, which implies a whopping 91.5% surge from the year-ago quarter.
However, it’s not all rosy for Micron. Despite these positive drivers, some challenges may have tempered the overall gains. Inflationary pressures and concerns about a potential global economic slowdown have dampened consumer spending, which is likely to have softened demand for memory chips in the smartphone and personal computer markets — two of Micron's key segments.
Micron's heavy reliance on China is a potential downside due to the ongoing trade tensions between the United States and China. The company's margins might also be strained by a higher mix of lower-margin NAND products and only minimal reductions in manufacturing costs.
Micron Stock Price Performance & Valuation
Year to date (YTD), Micron shares have risen 6.5%, underperforming the Zacks Computer and Technology sector’s increase of 22.2%. Compared with other major semiconductor companies, MU stock has underperformed NVIDIA NVDA, Marvell Technologies MRVL and Texas Instruments TXN, which have registered YTD gains of 134.2%, 22.5% and 19.2%, respectively.
YTD Price Return Performance
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Now, let’s look at the value Micron offers investors at the current levels. MU stock is trading at a discount with a forward 12-month P/S of 2.59X compared with the broader tech sector’s 6.28X.
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Investment Consideration for MU Stock
Micron is benefiting from improved market conditions, robust sales executions and strong growth across multiple business units. The positive impact of inventory improvement in the data center, as well as stabilization in other markets, such as automotive, industrial and others, is contributing to top-line growth.
MU anticipates the pricing of DRAM and NAND chips to increase next year, which will boost revenues. The pricing benefits should primarily be driven by rising AI servers, causing a scarcity in the availability of cutting-edge DRAM and NAND supply. Also, 5G adoption in the Internet of Things devices and wireless infrastructure is likely to spur demand for memory and storage.
However, the ongoing trade tensions between the United States and China remain a significant risk. Given Micron’s exposure to the Chinese market, any escalation in trade disputes could disrupt its supply chain or result in new tariffs, which may negatively impact margins. While the pricing outlook for memory chips is positive, the company’s reliance on lower-margin NAND products and slow progress in cutting manufacturing costs could limit its profitability gains in the near term.
Conclusion: Hold MU Stock for Now
Micron is in a strong position to deliver solid growth, driven by rising demand for memory chips in AI servers and improving market dynamics. However, challenges like soft consumer demand, trade tensions with China and margin pressures should temper expectations for a significant breakout in the near term.
Given its attractive valuation and improving fundamentals, holding Micron stock for now seems like the best strategy. The company has strong potential, but investors should wait to see how the macroeconomic environment and trade relations evolve before making any aggressive moves. For now, it’s best to stay patient and monitor this Zacks Rank #3 (Hold) stock heading into fourth-quarter earnings. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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