Will Micron Technology's Magnificent Stock Market Rally Continue After June 26?
Shares of Micron Technology (NASDAQ: MU) have been red-hot in 2024 with impressive gains of 58% so far, outperforming the PHLX Semiconductor Sector index's gains of 28% by a handsome margin. The recovery in the memory market, in terms of both demand and pricing, has been central to Micron's eye-popping surge as its financial results have been improving tremendously.
However, Micron's stock-market rally will be put to the test on June 26, when the company releases its fiscal 2024 third-quarter results. Let's see if the memory specialist can once again deliver a solid set of results and guidance and maintain its stock-market momentum.
Higher memory prices should be a tailwind for Micron
Micron's revenue in the second quarter of fiscal 2024 (which ended on Feb. 29) jumped 58% year over year. The chipmaker also posted a non-GAAP (adjusted) profit of $0.42 per share, compared to a loss of $1.91 per share in the same period last year. Micron's numbers were well ahead of Wall Street's expectations thanks to the healthy demand for its memory chips, driven by the growing demand for applications related to artificial intelligence (AI).
What's more, the company's guidance also exceeded consensus estimates. Micron is forecasting fiscal Q3 revenue of $6.6 billion and adjusted earnings of $0.45 per share. The top-line estimate points toward a stronger year-over-year growth of 76%, while the bottom line would be a massive improvement over the $1.43-per-share loss it posted in the year-ago period.
Analysts, however, now see slightly stronger growth from Micron. They are expecting the company to earn $0.48 per share on $6.63 billion in revenue. There's a good chance that Micron will be able to live up to Wall Street's expectations: Memory prices reportedly kept increasing in the second quarter of 2024, with contract prices jumping an estimated 20% to 25%.
What's more, the memory market is expected to develop a demand-supply gap in the second half of the year. According to market researcher TrendForce, memory demand could exceed supply by 20% to 30% in the second half of 2024, leading to massive memory price hikes of 50% to 100%. Not surprisingly, analysts expect Micron's growth to accelerate further as the year progresses.
Consensus estimates are projecting an 86% rise in its fiscal Q4 revenue to $7.48 billion. Micron is projected to post a profit of $0.93 per share, compared to a loss of $1.07 per share in the year-ago period. Again, it won't be surprising to see the company's growth accelerate further later in the year, as AI is driving massive demand for memory chips.
For instance, AI-enabled personal computers (PCs) require bigger memory chips. AI PCs need at least 16 gigabytes (GB) of DRAM (dynamic random access memory) capacity. Meanwhile, a survey of users on the popular gaming platform Steam, which had 132 million monthly active users as of 2021, revealed that in 2023 more than 45% of Steam users were using PCs with 8 GB of DRAM.
So the advent of AI is likely to drive a significant upgrade cycle in the PC market and help drive stronger growth for Micron. Market research firm Canalys is forecasting that AI-enabled PC shipments could increase at an annual rate of 44% through 2028.
Meanwhile, AI servers are also driving a surge in memory demand and pricing. Yole Group forecasts that the demand for DRAM deployed in AI servers could increase at an annual rate of 39% through 2029. This improved demand is expected to be accompanied by an improvement in pricing. The price of high-bandwidth memory (HBM) used in AI servers could jump by 5% to 10% next year. Additionally, as memory makers prioritize HBM production, the price of other memory chips such as DDR5 could rise by 15% to 20% due to tight supplies.
It's worth noting that Micron has sold out its HBM capacity through the end of 2025, so there's a good chance that the company could continue to grow at an impressive pace in the current fiscal year and beyond. Moreover, the discussion above suggests that this AI stock could indeed get a shot in the arm following its upcoming earnings report.
Should you buy this chip stock before June 26?
Though Micron stock has jumped significantly this year already, it's trading at a valuation of 7.8 times sales and 18.4 times forward earnings. The U.S. technology sector currently has an average sales multiple of 7.6 and earnings multiple of 44.5.
Micron has the potential to surge higher following the release of its fiscal 2024 Q3 earnings report later this month. Given the phenomenal growth it's been experiencing, and is expected to deliver in the future, buying it looks like a no-brainer right now.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
