Financial Report Preview | HBM's fundraising ability is at its peak! Will the latest performance boost Micron Tech's stock price?

According to the Zhitong Finance and Economics APP, the US storage chip giant Micron Tech will release its 2024 fiscal second-quarter financial report on March 20th, US Eastern Time. Wall Street analysts generally expect that the growth in revenue from Micron Tech's DRAM memory chips and HBM memory systems will help the company significantly reduce its losses. They will also disclose more detailed information about the HBM memory supplied to global AI chip leader NVIDIA (NVDA.US) for their new AI hardware systems. Ahead of Micron Tech's performance announcement, Citigroup reiterated a "buy" rating on Micron Tech and raised the target price from $95 to $150. Micron Tech has surged by as much as 70% in the past year, closing at $93.25 last week.

It is understood that, according to Wall Street analysts' expectations compiled by Visible Alpha, analysts generally expect Micron Tech's revenue for the 2024 fiscal second quarter to reach $5.33 billion, higher than the previous quarter and the same period in 2023. With the expected revenue growth, the company is expected to record a net loss of around $276 million (approximately $0.26 diluted loss per share), significantly narrowing from the loss of $2.08 billion (equivalent to $1.91 loss per share) in the same period last year. Both of these figures are in line with Micron Tech's quarterly guidance.

Renowned Citigroup analyst Christopher Danely wrote in an investor report last week: "Given the strong increase in DRAM prices in the consumer electronics sector, and the higher selling price and much higher profit margin of HBM memory systems bound to NVIDIA's new AI chips, we expect the company to announce performance above market expectations and significantly raise its performance expectations for the 2024 fiscal third quarter."

Christopher Danely reiterated the "buy" rating on Micron Tech from the institution and raised the target price from $95 to $150, indicating a potential upside of as much as 60% in the next 12 months In addition, Analyst Danely predicts that Micron Tech's total revenue for the third quarter of the fiscal year 2024 will reach as high as $6 billion, with a turnaround from a loss to a profit on a quarter-on-quarter basis. It is estimated that the earnings per share for Q3 will be around $0.26, mainly driven by the surge in demand for HBM storage systems and a significant increase in DRAM sales.

Danely currently forecasts a loss per share of about $0.58 for Micron Tech in the fiscal year 2024, with the potential for earnings per share to reach as high as $6.65 in the fiscal year 2025. Previous forecasts were for a loss per share of $1.29 and earnings per share of $6.38, respectively.

One of Micron Tech's key indicators: Revenue from DRAM

The well-known research firm TrendForce recently released a report stating that in the fourth quarter of 2023, the revenue scale of the entire DRAM storage industry was on a growth trend. "This is driven by the efforts of leading global manufacturers such as Micron Tech, Samsung, and SK Hynix to normalize inventory levels and strategic production control," TrendForce wrote in the report.

TrendForce predicts that due to the continuous upward trend in prices and sales volume, the overall revenue growth rate of the global DRAM industry in the fourth quarter is expected to be close to 30%. The agency estimates that Micron Tech held a 19.2% market share during this period, becoming the world's third-largest DRAM manufacturer after Samsung and SK Hynix.

According to TrendForce's research, looking ahead to the first quarter of 2024, the global DRAM industry's sales scale is expected to grow. With regards to price expectations for the first quarter, TrendForce maintains its previous forecast, with a quarterly increase of approximately 13-18% for DRAM contract prices and 18-23% for NAND Flash. Although the current market view on overall demand for the second quarter remains conservative, DRAM and NAND Flash suppliers have already increased production capacity utilization rates in the late fourth quarter of 2023 and the first quarter of 2024. In addition, NAND Flash buyers have been gradually replenishing inventory in the first quarter, leading to a convergence of contract price increases for DRAM and NAND Flash in the second quarter to 3-8%.

TrendForce predicts that as the third quarter enters the traditional peak season, the demand is expected to come from North American cloud service providers (CSP) with strong replenishment momentum. With the premise that the production capacity utilization rates for DRAM and NAND Flash have not yet fully recovered, there is an opportunity for both to see a simultaneous expansion in contract price increases to 8-13%.

In the DRAM sector, the increase in penetration rates of DDR5 and HBM, coupled with higher average prices, has led to an expansion in DRAM growth. In the fourth quarter, assuming suppliers can maintain effective production control strategies, the upward trend is expected to continue, with an estimated quarterly increase in DRAM contract prices of about 8-13%.

It is worth noting that TrendForce's expectation of a larger increase in DRAM contract prices is mainly driven by the rising market penetration of DDR5 and HBM products. If we only observe a single product, such as DDR5, there may still be a seasonal decline. This means that the increase in DRAM contract prices this year is not across all categories, but rather a gradual shift in product categories. The estimated quarterly increase in NAND Flash contract prices is 0-5%.

Analysts from the well-known Wall Street investment firm Wedbush predict that Micron Tech's DRAM revenue for the second quarter of the 2024 fiscal year will reach $3.9 billion, higher than the previous quarter's $3.43 billion and the second quarter of 2023's $2.72 billion. Since over 75% of Micron Tech's revenue comes from DRAM (including revenue from HBM), the significant increase in DRAM revenue will help greatly reduce the company's losses.

South Korean storage giant SK Hynix expects the memory chip market conditions to have significantly improved since the third quarter, with prices and sales volume expected to improve significantly in 2024, echoing the optimistic expectations of Samsung Electronics.

HBM - Expected to Become Micron Tech's "New Revenue Engine"

Wall Street analysts generally expect Micron Tech to provide more details about its HBM storage systems produced for NVIDIA's AI hardware systems. Analysts widely anticipate that HBM will be the fastest-growing segment of Micron Tech's revenue for at least the next three years, and its scale is expected to rival Micron Tech's traditional businesses of DRAM and NAND over the next three years.

Micron Tech plans to start mass production of the new HBM3E storage products in early 2024 (around February) and begin deliveries, revealing that NVIDIA is one of its major customers for the new HBM storage products. Additionally, the company emphasizes that its new HBM products have garnered significant interest across the industry, implying that NVIDIA may not be the only major customer ultimately using Micron Tech's HBM3E. Micron Tech clearly has high hopes for HBM3E, as this could enable it to continuously gain market share from SK Hynix and Samsung Electronics, thereby significantly increasing the company's revenue and profit.

According to some industry insiders, Micron Tech's HBM3E will support NVIDIA's new AI hardware system equipped with HBM3E - the Grace Hopper GH200 supercomputing system (which features the H100 computing GPU and Grace CPU). This indicates that the latest progress of Micron Tech in the HBM field is not only a comprehensive technological breakthrough, but also a deepening of its cooperation with NVIDIA. According to industry insiders, the supercomputing system based on the B100 and H200 GPUs to be released by NVIDIA may also be equipped with Micron Tech's HBM3E**.

During the previous earnings conference call, Micron Tech's CEO Sanjay Mehrotra stated that the company expects to generate "hundreds of millions of dollars in HBM revenue in fiscal year 2024," with strong growth expected to continue into 2025.

As Micron Tech continues to deliver HBM3E storage systems to NVIDIA, analysts at Goldman Sachs suggest that the company may expand to include other customers, including AMD. Analysts at Goldman Sachs wrote, "We believe that Micron Tech has a lot of room to deepen its cooperation with NVIDIA—gaining higher market share on future GPU platforms and expanding its customer base beyond NVIDIA."

HBM is a high-bandwidth, low-power storage technology specifically designed for high-performance computing and graphics processing. Multiple DRAM chips stacked in HBM are interconnected through fine Through-Silicon Vias (TSVs) for high-speed, high-bandwidth data transfer. HBM is mainly used in high-performance graphics cards, AI acceleration, high-performance computing, and data center servers. Its high bandwidth, low latency, and high energy efficiency enable processors to access memory space faster, significantly improving computing performance and efficiency. In the AI infrastructure field, HBM storage systems are used with NVIDIA's H100 AI server system, as well as upcoming AI server systems such as B100 and H200.

The Micron Tech HBM3E module is based on eight stacked 24Gbit memory chips manufactured using the company's 1β (1-beta) process. These modules have a data rate of up to 9.2 GT/s, achieving a peak bandwidth of 1.2 TB/s per stack, a 44% improvement over the fastest HBM3 modules currently available. Meanwhile, the company will not stop its 8-Hi 24 Gbit HBM3E components. The company announced that after starting mass production of 8-Hi 24GB stacks, it plans to launch a super large capacity 36 GB 12-Hi HBM3E stack in 2024.

According to the forecast data from the well-known research institution Mordor Intelligence, the market size of HBM storage products is expected to surge from approximately $2.52 billion in 2024 to $7.95 billion in 2029. The compound annual growth rate during the forecast period (2024-2029) is as high as 25.86%.

Since the beginning of this year, Micron Technology's stock price has risen by over 13%, with a gain of over 70% in the past 12 months as of last Friday's close. Earlier this month, as analysts emphasized the storage giant's important position in the artificial intelligence boom, the company's stock price reached a record high this year. Citigroup stated that Micron Technology is their top pick in the US semiconductor sector, mainly due to the incredibly strong demand for HBM storage brought by the surge in demand for AI chips