Earnings Report Preview | Riding the AI Trend with HBM Boost! Micron Tech's Q3 Performance Expected to Surge Again

According to the financial news app Zhitong Finance, Micron Technology (MU.US) is set to release its third-quarter financial report on Wednesday, June 26. The market expects Micron's revenue to be $6.67 billion, a year-on-year increase of 77.9%; and the expected earnings per share to be $0.53, compared to a loss of $1.43 per share in the same period last year.

Given the overall industry recovery and strong growth in HBM market share, Micron's performance in the third quarter is likely to exceed expectations and provide stronger guidance. While HBM continues to dominate, the supply and demand dynamics in non-HBM areas may lead to surprising revenue growth.

The company had previously stated its intention to restore free cash flow profitability. As of June 21, 2024, Micron Technology's stock price has risen by 75% since the beginning of the year.

Micron's Entry into the AI Industry

Starting in 2024, Micron Technology is fully transitioning into the AI field and announced a development agreement with NVIDIA in February. It is reported that NVIDIA will use Micron Technology's High Bandwidth Memory (HBM) in its H200 chip.

Reports indicate that one of Micron's most famous AI chips, HBM3E, has already sold out most of its quota for 2024 and 2025.

Micron CEO Sanjay Mehrotra told analysts at a financial conference, "Micron has restored profitability and achieved a positive operating profit margin one quarter ahead of schedule. With tightening supply and demand balance, Micron has been driving strong price increases."

Mehrotra also mentioned, "The improvement in market conditions is the result of multiple factors, including strong demand for AI servers and reduced supply across the industry."

Tom's Hardware reported in May, "It is expected that the price of HBM memory will rise by 5% to 10% next year... In addition, prices of other types of DRAM may also increase, with DDR5 expected to rise by 15% to 20%, as memory manufacturers shift their focus to HBM production."

This is largely being driven by the surge in data center demand, which also supports SSD demand. Strong demand, NAND supply and demand rebalancing, and reallocating production capacity to HBM have led to industry-wide price increases higher than previously expected.

Third Quarter Expectations and Investor Outlook

Micron is likely to provide very impressive performance and guidance this quarter. Sales growth is mainly due to continuous increases in average selling prices, leading to an expansion in gross margin. Capacity expansion also supports stronger guidance than expected.

The company's sales in the second quarter exceeded expectations by $300 million or 5.45%, and third-quarter sales are expected to be between $6.4 billion and $6.6 billion. Considering CEO Mehrotra's statement that HBM capacity will be sold out by 2024, this indicates that sales growth will benefit from strong price increases. This is why recent reports on strong memory pricing capabilities have made the market more optimistic As artificial intelligence begins to spread in the edge field, the tailwind of consumer electronics is also bringing strong tailwinds to data centers. With the emergence of more and more artificial intelligence products, more production capacity will be dedicated to HBM. This will further exacerbate the supply-demand imbalance of NAND and non-HBM DRAM products, thereby supporting further price increases. In addition, Micron expects operating expenses to remain stable, so the expansion of gross margin will also translate into the expansion of operating and net profits.

All signs indicate that Micron's performance this quarter is very strong and is expected to achieve another excellent performance. The market has rewarded Micron handsomely this year, and it is expected that Micron will receive similar rewards.

Wall Street collectively raises expectations

On June 17, 2024, several analysts adjusted their target stock price for Micron before the company's financial report was released.

Bank of America Securities raised Micron's target stock price from $144 to $170 and confirmed a buy rating on the stock. Analysts at Bank of America Securities stated: Micron will be a major beneficiary of the rising market share in the high-bandwidth memory (HBM) for cloud computing.

Cantor Fitzgerald analyst C.J. Muse also raised the target price for Micron from $150 to $180 and maintained a hold rating on the company's stock. Muse said he expects Micron's performance to robustly exceed analysts' expectations, and HBM chips may bring new surprises.

In addition, Susquehanna raised Micron's target price from $143 to $185 and maintained a positive rating on the stock.

The numerous Wall Street institutions raising their expectations for Micron reflect the market's optimism towards AI and its associated and extended industries, such as the memory chip industry where Micron operates