Micron (NASDAQ:MU) investors faced a tough week they’d rather forget, as the stock recorded its steepest decline since 2020. The drop followed the memory giant’s latest quarterly update, marked by a solid fiscal first-quarter performance overshadowed by a disappointing outlook.
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For the November quarter, revenue climbed 84% year-over-year to a record $8.71 billion, meeting Street expectations. Within that haul, data center revenue soared over 400% compared to the year-ago period and 40% sequentially, reaching a record high and accounting for more than 50% of total revenue for the first time. Gross margins improved by 300 basis points quarter-over-quarter to 39.5%, resulting in adjusted EPS of $1.79, surpassing the Street’s forecast of $1.77.
So there’s not much to gripe about there. Yet, what really rankled was an outlook that missed expectations in a big way. For the February quarter, Micron expects revenue between $7.7 and $8.1 billion, and adj. EPS between $1.33 and $1.53. At the midpoint, those are well below the respective $8.99 billion and $1.92 the analysts were calling for. The company laid the blame for the lackluster outlook on excess inventory and weak demand in consumer-facing markets, such as PCs and smartphones, which are expected to create headwinds for NAND bit shipments and ASPs.
That said, while investors voiced their disappointment, Micron expects things will look a lot better as next year progresses. The company anticipates better supply/demand dynamics and improved inventory levels among PC and smartphone clients in the latter half of FY25. Additionally, comments from the earnings call indicate that the majority of the sequential revenue decline in the February quarter is attributed to weakness in the NAND market.
J.P. Morgan analyst Harlan Sur, who ranks among the top 1% of Wall Street analysts, also sees silver linings amid the turbulence.
“Despite the soft Feb-Qtr revenue outlook, gross margin was guided down only 100 basis points Q/Q (38.5% at the midpoint), which implies blended DRAM pricing will continue to trend higher Q/ Q as Micron drives strong data center mix (HBM, server DRAM) while driving improvements in HBM production yields,” Sur explained.
Furthermore, Micron more than doubled its HBM revenue sequentially in the quarter, with strong momentum expected to continue through FY25. The company also raised its 2025 HBM market forecast by 25%, increasing it from $25 billion to over $30 billion. Micron anticipates the HBM total TAM (total addressable market) will reach approximately $65 billion by 2028 and surpass $100 billion by 2030.
As such, Sur’s recommendation is to hang in there and look ahead to better days.
“Despite the near-term weakness, we continue to believe the down-cycle in memory will be short-lived and expect market conditions to improve in the latter part of 2025 as leading-edge DRAM supply remains tight and strong AI server demand continues to drive growth in HBM/ DDR5,” the 5-star analyst summed up. “In this regard, we maintain a positive view on the stock in 1H 2025 as the market starts to discount a recovery in revenue/pricing/GMs in 2H 2025.”
With this optimistic outlook, Sur reaffirmed his Overweight (i.e. Buy) rating on Micron, albeit lowering his price target from $180 to $145. Even with this adjustment, the new target offers a ~61% upside from current levels. (To watch Sur’s track record, click here)
The Street’s average price target is a bit higher; at $153, the figure makes room for 12-month returns of 70%. All told, MU retains a Strong Buy consensus rating, based on a confidence boosting mix of 23 Buys vs. 1 Hold. (See Micron stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
