Low expectations for "beneficiaries"? Focus on Micron's quarterly report tonight, AI business may shine

Amid the continued downturn in the semiconductor industry, can Micron Technology's new quarterly financial report revive investors' confidence in the entire sector?

Micron will release its fiscal fourth-quarter results for the 2024 fiscal year ending in August after the U.S. stock market closes on Wednesday. Wall Street expects that Micron is expected to achieve revenue of $7.65 billion in the fourth quarter, a year-on-year increase of 90.8%, with earnings per share of 82 cents, compared to a loss of $1.31 per share in the same period last year. Adjusted earnings per share for the fourth quarter are expected to be $1.11.

Analysts predict that Micron's revenue from HBM chips (High Bandwidth Memory chips) used for AI data processing will experience strong growth.

Micron may also indicate that the demand for AI chips remains strong, but chip demand in other markets such as personal computers and smartphones remains sluggish. Several chip manufacturers have previously expressed similar views.

Looking back at the third-quarter report released in June, Micron's performance for the quarter exceeded expectations across the board, but the company's guidance for the next quarter did not meet Wall Street's "very high expectations," and HBM chip production capacity is limited. Since then, Micron's stock price has been falling continuously, dropping nearly 40% from its high point in June, underperforming other chip giants.

This time, can Micron deliver a report that satisfies Wall Street? Before the U.S. stock market opens on Wednesday, Micron's stock price has risen slightly by 0.6%.

"Victims" of High Expectations, "Beneficiaries" of Low Expectations

In the eyes of some analysts, Micron's current stock price is already attractive enough.

"Last quarter, Micron Technology became a victim of high expectations, but since then the stock price has fallen significantly, which means it could now be a beneficiary of low expectations," said Christian Fromhertz, CEO of Tribeca Trade Group. "It must send out positive signals to break through the resistance level, but it seems that people think it's worth a try at the current level."

Fromhertz stated that if the new quarter performs well, Micron's stock price may once again surpass the $100 mark and even push above the 105-dollar level of the 200-day moving average. However, he also warned that breaking below the recent support level near $86 would be a bearish signal.

It is worth noting that bullish sentiment in the options market is strengthening.

The ratio of open interest contracts between Micron's put options and call options is only half of what it was a year ago, with more long positions than short positions recently, particularly with a large number of call options at $100, and even larger positions for call options at $95 and $155.

Citi remains cautious. Analyst Christopher Danely stated in a report that **DRAM memory chip prices are not expected to turn around for the next three to six months, and until then, Micron's stock price will remain weak Danely gives Micron a "buy" rating (over 90% of analysts hold the same rating), but he believes that in the short term, Micron's popularity in the market will remain weak.

Looking ahead, there is still room for Micron's stock price to rise. According to data compiled by Bloomberg, Micron's stock price is expected to increase by over 50% in the next 12 months, making it the chip manufacturer with the highest expected return so far.

Furthermore, Micron's expected P/E ratio is around 10 times, making it the cheapest component stock in the Philadelphia Semiconductor Index. In comparison, Nvidia's P/E ratio is over 32, and ARM's P/E ratio is the highest, close to 80.

Can Micron Become an Industry Catalyst?

Despite AI being seen as a favorable factor for strong growth, Micron's other businesses, especially its personal computer and smartphone chip business, have yet to overcome the unfavorable market demand situation.

A previous research report by Morgan Stanley pointed out that the memory chip industry is being affected by oversupply and price declines, especially with more competitors entering the DRAM market, intensifying industry competition and entering a downward cycle.

Furthermore, Micron's HBM chip production capacity remains limited. In June of this year, Micron Technology stated that HBM memory chips for 2024-25 have already been sold out.

Analyst Karl Ackerman wrote in the report: "While some investors correctly predicted the recent performance risks of Micron, we believe that by 2025, Micron's performance will still lag behind its AI peers." His $67 target price is the lowest on Wall Street.

The key question is whether Micron's valuation fully reflects the challenges it faces.

Daniel Morgan, Senior Portfolio Manager at Synovus Trust, is optimistic about this, believing that Micron's performance could become a catalyst for the entire industry.

Morgan stated: "The worst period is behind us, and the AI narrative has the potential to create outperformance in the coming quarters. If Micron can confirm that there is substance behind this excitement, it will boost the entire AI industry. This is what the market is eager for."