Company Reports

We raise our fair value estimate for shares of no-moat Micron Technology to $80, from $70, as we raise our short-term forecasts after the firm reported strong February-quarter results and an outlook for the May quarter above our model. We believe Micron has more strength to come in the next two years as it benefits from rebounding prices in both DRAM and NAND memory chips after steep downturns in 2023. We expect Micron to also see upside to the underlying DRAM market rebound as it develops rising penetration in high-bandwidth memory, or HBM, which is an input into graphics processing units, or GPUs, from the likes of Nvidia that run artificial intelligence models. Still, we believe Micron will continue to be prone to memory market cyclicality (as seen in 2023) over the long term, and we forecast more tepid growth after fiscal 2025. We continue to see shares as overvalued and recommend investors seek a better entry point.

We see Micron Technology as a strong supplier of memory chips, but we don’t believe the firm holds an economic moat. Micron benefits from large scale, being the fifth-largest chipmaker in the world, but we don’t see enough scale to generate consistent economic profits. Micron holds a third-place market share in dynamic random access memory, or DRAM, chips and a fifth-place market share in not-and, and NAND, flash chips. We view both the DRAM and NAND markets as highly cyclical, and we expect Micron to thrive in periods of strong demand and pricing, but to be vulnerable to downcycles that compress shipments, prices, and profits.

We maintain our $70 fair value estimate for shares of no-moat Micron Technology after it reported good fiscal first-quarter results. The results bore no surprises, given Micron released results in late November. Still, we’re pleased to see the rebounds across both DRAM and NAND progressing, with prices continuing to rise from deep troughs earlier in 2023. Micron’s first-quarter results and second-quarter guidance are positively above our initial expectations, and we see this as market rebounds are happening earlier than we previously thought. Despite the pull-in of some sales into earlier quarters, we continue to hold expectations for Micron to return to roughly $30 billion in revenue in fiscal 2025 and 2026 and maintain our valuation. We see shares as overvalued.

We maintain our $70 fair value estimate for no-moat Micron Technology after the company raised its fiscal 2024 first-quarter guidance. Micron has seen better pricing dynamics, primarily in DRAM chips, over the course of the quarter, which ends Nov. 30. We’re pleased to see higher expectations for sales and profits in the first quarter, and we see our broader expectations for rebounding results in fiscal 2024 and fiscal 2025 playing out. The shares dipped nearly 3% in Nov. 28 midday trading, we think largely because of the rebound expectations already baked into the price. We believe the shares are fairly valued.

We maintain our $70 fair value estimate for shares of no-moat Micron Technology after the firm’s fiscal fourth-quarter results and fiscal first-quarter guidance exceeded our expectations. We maintain our model for fiscal 2024 and longer term but now see an earlier and less back-end-weighted recovery through fiscal 2024. Micron management believes recoveries for the DRAM and NAND markets are underway. While we’ve seen bit shipments for both technologies improve from February-quarter bottoms, management believes pricing has bottomed in the August quarter and is set to rebound. In our view, a cyclical recovery for memory chips should be bolstered by the emerging high spending toward artificial intelligence-focused data centers, which offer a content uplift to suppliers like Micron. We see shares as fairly valued and view a modest selloff afterhours as myopic considering a fiscal first-quarter outlook that while weak, represents a meaningful improvement.

We see Micron Technology as a strong supplier of memory chips, but we don’t believe the firm holds an economic moat. Micron benefits from large scale, being the fifth-largest chipmaker in the world, but we don’t see enough scale to generate consistent economic profits. Micron holds a third-place market share in dynamic random access memory, or DRAM, chips and a fifth-place market share in not-and, and NAND, flash chips. We view both the DRAM and NAND markets as highly cyclical, and we expect Micron to thrive in periods of strong demand and pricing, but to be vulnerable to downcycles that compress shipments, prices, and profits.

We maintained our $70 fair value estimate for shares of no-moat Micron after revisiting our moat and valuation assumptions. We’ve raised our fiscal 2024 and fiscal 2025 revenue forecasts to reflect an aggressive rebound from the precipitous memory downturn in fiscal 2023, and we model revenue growth tapering to a midcycle level in the midsingle digits thereafter. We’ve also raised our midcycle margin expectations, with midcycle non-GAAP gross margin modestly above 40% and non-GAAP operating margins reaching 30%. We still see shares as fairly valued.

We see Micron Technology as a strong supplier of memory chips, but we don’t believe the firm holds an economic moat. Micron benefits from large scale, being the fifth-largest chipmaker in the world, but we don’t see enough scale to generate consistent economic profits. Micron holds a third-place market share in dynamic random access memory, or DRAM, chips and a fifth-place market share in not-and, and NAND, flash chips. We view both the DRAM and NAND markets as highly cyclical, and we expect Micron to thrive in periods of strong demand and pricing, but to be vulnerable to downcycles that compress shipments, prices, and profits.

Micron Technology reported fiscal third-quarter 2023 results that surpassed our expectations on the top line and for gross margin despite $400 million in inventory write-downs in the quarter. Pricing continues to suffer as customers work through excess inventory and a slowing in bit demand growth despite an increase in total shipments. We expect average selling prices for both DRAM and NAND to be nearing a trough and believe the pricing trend will reverse early in fiscal 2024. Micron faces restrictions in China from the Cyberspace Administration of China as "critical infrastructure operators" in China are prohibited from purchasing Micron products. We view the ban as significant, with a potential headwind to revenue growth of at least 1,000 basis points. Uncertainty is high on the total impact from the ban, and we are encouraged by a pivot to focus on gaining DRAM and NAND share with other customers. Easing the impact from the ban is the growth opportunity in AI servers, which have 6 to 8 times the DRAM content of a regular server and 3 times the amount of NAND content. Furthermore, DDR5 shipments have more than doubled quarter over quarter, and 75% of DRAM on AI servers is DDR5.

Micron Technology is a prominent supplier and manufacturer of memory and storage used in a plethora of electronic devices ranging from personal computers to smartphones. The firm is number three in market share for total memory/storage shipments, after Samsung and SK Hynix. Dynamic random-access memory, or DRAM, accounts for about 70% of total revenue, with NAND flash making up the remainder. As Micron operates in the highly competitive and cyclical memory space, we believe its profitability will be somewhat volatile and dependent on market dynamics, which contributes to our no-moat rating.

Micron Technology's fiscal 2023 second-quarter results fell below our expectations due to $1.4 billion in inventory write-downs, reflecting the worst memory downturn in the last 13 years. Tepid demand and elevated inventory levels have damaged pricing. Although we remain positive on long-term memory demand growth from key trends such as artificial intelligence, 5G, electric/autonomous vehicles, and cloud computing, we now expect revenue to fall 50% in fiscal 2023 before rebounding in fiscal 2024 and thereafter. Micron is cutting its fiscal 2023 capital expenditure budget to $7 billion (versus $12 billion in fiscal 2022), lowering its headcount by 15%, and reducing its utilization and output. Quarterly operating expenses are expected to decline to below $850 million by the fourth quarter (from about $1 billion this quarter).

Micron reported fiscal first-quarter results that were slightly below our expectations while providing a grim outlook for 2023. The no-moat memory supplier and its peers are facing an industry downturn as demand softens and inventory levels at customers remain high. While we are positive on long-term memory demand growth from key trends such as artificial intelligence, 5G, electric/autonomous vehicles, and cloud computing, we expect Micron’s fiscal 2023 revenue to be down sharply (at least 40%) before rebounding in fiscal 2024 and beyond. We like that Micron is cutting its capital expenditure budget for fiscal 2023 to $7 billion to $7.5 billion (versus $12 billion in fiscal 2022), lowering its headcount by 10%, and reducing its utilization and output. Quarterly operating expenses are expected to decline to $850 million by the fourth quarter (from about $1 billion this quarter).

Micron reported fiscal fourth-quarter results that suffered from deteriorating end-market conditions, with revenue falling short of management’s guidance. Although we remain positive on long-term memory demand growth stemming from trends such as artificial intelligence, 5G, electric/autonomous vehicles, and cloud computing, we now expect fiscal 2023 revenue to be down sharply (at least 30%) as the industry grapples with tepid consumer demand and oversupply. We appreciate that Micron is cutting its capital expenditure budget for fiscal 2023 to $8 billion (versus $12 billion in fiscal 2022) and will be lowering its factory utilization to curb output. Based on our lower near-term revenue and margin assumptions, we are lowering our fair value estimate to $70 per share from $90 for no-moat Micron. Although shares trade at a discount to our updated fair value, we think prospective investors should prioritize more moatworthy chip stocks such as AMD and ASML.

Micron Technology is a prominent supplier and manufacturer of memory and storage used in a plethora of electronic devices ranging from personal computers to smartphones. The firm is number three in market share for total memory/storage shipments, after Samsung and SK Hynix. DRAM accounts for about 70% of total revenue, with NAND making up the remainder. As Micron operates in the highly competitive and cyclical memory space, we believe its long-term profitability will be somewhat volatile, though recent consolidation has helped mitigate the sharp swings Micron and its peers have experienced historically.

Micron reported fiscal third-quarter results slightly ahead of management's guidance, but provided fourth-quarter guidance below our expectations due to weaker industry demand, particularly in the PC and smartphone markets. CEO Sanjay Mehrotra reiterated his optimism for increasing memory demand related to secular trends such as artificial intelligence, 5G, electric/autonomous vehicles, and cloud computing. However, we expect fiscal 2023 revenue will be down in the mid-single digits as overall demand softens amid inflationary pressures. Although our near-term forecasts are lower, we also lowered our capital expenditure assumptions for fiscal 2023, as we expect the firm to lower its bit supply growth to avoid tipping the industry into oversupply. Consequently, we are maintaining our $90 fair value estimate and we think shares of no-moat Micron are undervalued.

We attended Micron’s 2022 investor day and came away with renewed confidence in our positive thesis for the memory supplier. Over the past few years, Micron has significantly improved its profitability, technology and product portfolio, and balance sheet. We are most optimistic on Micron’s DRAM segment, which is expected to remain over 70% of total revenue in future. Given consolidation in the DRAM market and Micron being the first to deploy industry leading 1-alpha (14-nanometer) DRAM, we think Micron’s DRAM business is well positioned to take advantage of diverse end-market growth. Specifically, management expects the memory opportunities in the data center, industrial, and automotive markets to be the fastest growing over the next five years. We agree with this sentiment and view shares of no-moat Micron as undervalued relative to our unchanged $90 fair value estimate.

Micron Technology is a prominent supplier and manufacturer of memory and storage used in a plethora of electronic devices ranging from personal computers to smartphones. The firm is number three in market share for total memory/storage shipments, after Samsung and SK Hynix. DRAM accounts for about 70% of total revenue, with NAND making up the remainder. As Micron operates in the highly competitive and cyclical memory space, we believe its long-term profitability will be somewhat volatile, though recent consolidation has helped mitigate the sharp swings Micron and its peers have experienced historically.

Micron reported fiscal second-quarter results slightly ahead of management's guidance. CEO Sanjay Mehrotra reiterated his optimism for increasing memory demand related to secular trends such as artificial intelligence, 5G, electric/autonomous vehicles, and the metaverse. Management expects third-quarter sales to be even stronger, thanks to broad-based demand. That said, we expect softer PC and smartphone demand in the coming quarters, with Mehrotra anticipating relatively flat PC unit sales in 2022 versus 2021 and weakness in the China smartphone market. Although we model solid double-digit revenue growth for Micron in fiscal 2022, we forecast fiscal 2023 sales will be modestly down year over year as industrywide shortages alleviate and demand softens amidst inflationary pressures.

Micron reported fiscal first-quarter results consistent with management's guidance. CEO Sanjay Mehrotra reiterated his optimism for the memory industry in 2022, particularly the second half of Micron's fiscal 2022. We remain positive on increasing memory demand related to secular trends such as artificial intelligence, 5G, electric/autonomous vehicles, and the metaverse. However, in the near term we remain vigilant for signs of softer PC or smartphone demand. During the quarter, Micron was impacted by weaker memory demand from PC OEMs due to shortages of non-memory components. Mehrotra believes PC demand is now stabilizing, which bodes well for 2022. We expect the industry-wide shortages to alleviate sometime in the coming quarters, but memory demand should remain robust throughout 2022 as chip customers raise their normalized inventory levels. Shares of Micron rose nearly 7% during after-hours trading. We are maintaining our fair value estimate of $90 per share and we think shares of no-moat Micron are fairly valued.

Micron reported strong fiscal fourth-quarter results, with revenue at the high end of guidance. CEO Sanjay Mehrotra was optimistic that the memory industry would once again exhibit solid growth in calendar 2022, thanks to increasing data center server deployments, 5G mobile shipments, and ongoing strength in automotive and industrial markets. That said, management’s revenue guidance for its fiscal first quarter was below our expectations, which Mehrotra attributed to stronger-than-expected levels in the fiscal fourth quarter and softer memory demand from the PC market that is grappling with shortages of non-memory components needed to complete PC builds. We expect the industry shortages to alleviate sometime in the upcoming quarters, but memory demand should remain robust into 2022 as chip customers are likely to raise their normalized inventory levels.