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Micron: A Hot Buy Heats Up, Fresh All-Time Highs Are Coming

It should have been no surprise that Micron’s (NASDAQ: MU) FQ3 earnings report was a blowout. Its position in the memory market, the normalization of end markets, and the rise of AI are driving business and indications across the spectrum are favorable. The takeaway for investors is that AI drives the growth, and spending on it is far from over. 

The likely scenario is that hyperscalers, governments, industries, and businesses will continue to invest in AI infrastructure building, maintenance, and upgrades, driving demand for Micron memory products. Its products are critical to the outlook. Micron is the leader in HBM memory solutions, providing superior capacity, performance, and efficiency compared to other manufacturers. 

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Micron Wows Market With Q3 Results and Guidance

Micron’s Q3 report is nothing less than stunning, with top- and bottom-line outperformance well-above MarketBeat’s reported consensus and the guidance equally strong. The company reported $9.3 billion in net revenue, up 36.6% compared to last year and more than 500 basis points (bps) above the consensus. 

The strength is driven by growth in both the NAND and DRAM memory markets, with strength centered in DRAM and the Computer & Networking segment. DRAM grew by more than 50% YOY, driven by a nearly-50% increase in HBM memory, the critical memory for AI semiconductor applications. Datacenter revenue was also strong, increasing by more than 100% while the consumer markets were also positive, offsetting lingering weaknesses in Mobile, Embedded, and Storage. 

The critical takeaway from the margin news is significant leverage gains. The company widened its gross and operating margins by 1100 and 1300, respectively, driving accelerated growth in earnings in all comparisons. The bottom line is that adjusted earnings of $1.91 are up more than 200% compared to last year and outperformed the consensus by 1,860 bps, with strength expected to increase in Q4.

The guidance is a driving force for this market. The company forecasts revenue to accelerate sequentially to $10.7 billion, a 15% increase, for a 38% YOY increase that may be cautious. The trends, including demand for NVIDIA (NASDAQ: NVDA) and AMD (NASDAQ: AMD) data center and AI-optimized GPUs, suggest outperformance and another quarter of robust guidance when the company next reports. 

Analysts' Trends Lead to Bullish Stampede in Micron Market

The bullish analyst shift in Micron’s markets that began in early CQ2 strengthened following the FQ3 report. MarketBeat tracked more than 15 revisions, and 100% of them include a price target increase. The consensus of revisions aligns with the broader consensus, $170 and a new all-time high, but notable takeaways include the lifted low and high ends of the ranges.

Those details reveal rising market support and an increasing potential for upside. A move to the consensus is an all-time high, and a move to the new high-end of $200 is more than 50% upside from the pre-release closing price. 

The price action in Micron stocks reflects the analysts' shift, including a 100% gain from the April lows. The market may look extended at these levels with stochastic overbought, but this rally has only just begun. Stochastic can remain overbought for an extended period given a bullish market, which is what the MACD reflects.

The convergent peak in June suggests this market is strengthening and can continue to rally over the summer. The critical resistance targets are located near $135, $145, and $157, and serve as potential trigger points for price pullbacks and entry opportunities. 

Today, Micron's biggest risk is its balance sheet, which is minimal. The company’s Q3 balance sheet highlights include increased cash, current, and total assets that offset increases in liabilities. Equity is up by 12.5% YOY, and leverage remains low, with total liability a little more than 0.5 times the equity and a little less than 0.5x the assets. 

Written by Thomas Hughes

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