Memory experts are due to release their results later this month, and they may provide some pleasant surprises.
of stocks Micron Technology (MU -1.24%) In 2024, it will rise by a staggering 58%. PHLX Semiconductor Division The index surged by a massive 28%. The recovery in the memory market, both in terms of demand and pricing, has been at the heart of Micron’s incredible surge, and the company’s financial performance has improved significantly.
However, Micron’s stock rally will be tested on June 26, when the company reports its fiscal third-quarter 2024 results. Let’s see if the memory specialist can once again deliver solid results and guidance and keep the stock’s momentum going.
Rising memory prices should be a boon for Micron
Micron’s revenue for the second quarter of fiscal 2024, which ended Feb. 29, increased 58% year over year. The company also reported non-GAAP (adjusted) earnings of $0.42 per share, improving from a loss of $1.91 per share in the same period last year. Micron’s numbers beat Wall Street expectations by a wide margin as demand for memory chips was strong, driven by increased demand for artificial intelligence (AI)-related applications.
Additionally, the company’s guidance also beat consensus estimates. Micron expects third-quarter sales of $6.6 billion and adjusted earnings of $0.45 per share. The revenue outlook represents strong year-over-year growth of 76%, and earnings would be a significant improvement from a loss of $1.43 per share in the same period last year.
However, analysts now expect Micron’s growth to strengthen slightly. Analysts expect the company to earn $0.48 per share on revenue of $6.63 billion. There’s a good chance Micron will be able to meet Wall Street’s expectations. Memory prices are expected to continue to rise in the second quarter of 2024, with contract prices reportedly increasing by an estimated 20-25%.
Additionally, the memory market is expected to experience a demand-supply gap in the second half of the year. According to market research firm TrendForce, memory demand could exceed supply by 20-30% in the second half of 2024, which could lead to a massive 50-100% increase in memory prices. Analysts, unsurprisingly, expect Micron’s growth to accelerate further as the year progresses.
Consensus estimates are calling for fourth-quarter revenue to rise 86% to $7.48 billion. Micron is projected to post earnings of $0.93 per share, compared with a loss of $1.07 per share in the year-ago period. Again, with AI driving surging demand for memory chips, it wouldn’t be surprising to see the company’s growth accelerate even more in the second half of the year.
For example, AI-enabled personal computers (PCs) will require larger memory chips. AI-enabled PCs will require at least 16 gigabytes (GB) of DRAM (dynamic random access memory) capacity. Meanwhile, a survey of users of the popular gaming platform Steam, which had 132 million monthly active users as of 2021, revealed that by 2023, more than 45% of Steam users will be using PCs with 8GB of DRAM.
As such, the emergence of AI is likely to spur a major upgrade cycle in the PC market, further accelerating Micron’s growth: Market research firm Canalys predicts that shipments of AI-enabled PCs could grow 44% annually through 2028.
Meanwhile, AI servers are also driving a surge in memory demand and prices. Yole Group predicts that demand for DRAM deployed in AI servers could grow at an annual rate of 39% through 2029. This increased demand is expected to be accompanied by rising prices. Prices of high-bandwidth memory (HBM), used in AI servers, could rise by 5% to 10% next year. Additionally, prices of other memory chips such as DDR5 could rise by 15% to 20% due to supply shortages as memory makers prioritize HBM production.
Of note, Micron has sold out its HBM production capacity through the end of 2025, meaning the company will likely continue to grow at an incredible pace beyond this quarter. Moreover, the above discussion suggests that this AI stock could indeed gain momentum after its upcoming earnings report.
Should you buy this chip stock before June 26th?
Micron’s stock, which has risen significantly already this year, is valued at 7.8 times sales and 18.4 times projected earnings, compared with the current average multiples of 7.6 times sales and 44.5 times earnings for the U.S. technology sector.
Micron is set to release its fiscal third quarter 2024 earnings report later this month, which could see its stock price soar. Given the incredible growth the company has experienced and the growth it’s expected to continue to achieve, it makes sense to buy now.
Harsh Chauhan has no investment in any of the stocks mentioned. The Motley Fool has no investment in any of the stocks mentioned. The Motley Fool has a disclosure policy.
