Why Are Micron Technology (MU) Stocks Soaring Today?

What happened?

Shares of memory chip maker Micron (NYSE:MU) rose 18.2% in the morning after the company reported impressive fourth-quarter earnings results. Micron outperformed most of the key metrics we track, including revenue, operating profit and EPS. Notably, the company posted a whopping 93% year-over-year revenue growth, showing that the AI ​​party is still going on for the memory chip maker. Management attributed the outperformance to growing demand for memory chips for generative AI applications.

In particular, the shift in computing power from endpoints to data centers is driving strong demand for Micron's data center business, which posted a record quarter of revenue. Growth in the data center business was driven primarily by demand for high-performance solutions and HBMs (high-bandwidth memory – a storage technology optimized for AI tasks). To illustrate the attractive opportunities, Micron predicts the HBM market will grow from $4 billion in 2023 to over $25 billion in 2025.

Other growth areas highlighted during the quarter include AI-powered PCs, smartphones and automotive use cases. Notably, PC makers are increasing their inventories due to rising memory prices, and this trend could be accelerated by the increasing adoption of AI-driven PCs that use more memory, even as memory makers allocate more production capacity to meet data center needs. Other positive trends include the end of support for the Windows 10 operating system, the release of Windows 12, and the upcoming replacement cycle.

To meet strong demand for its products, Micron is expanding its production nodes and factories in Idaho, New York, India and China.

So it wasn't surprising that management gave strong revenue and profitability forecasts for the next quarter that beat Wall Street's expectations. A small flaw was that inventories increased. However, strong demand for AI-powered solutions and improved pricing could provide some relief for Micron. In summary, we think this was a very solid quarter.

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What the market tells us

Micron Technology shares are quite volatile, with 16 moves of more than 5% in the last year. But such big moves are rare even for Micron Technology and suggest that this news has had a significant impact on the market's perception of the deal.

The last big move we wrote about occurred 14 days ago, when the stock plunged 6% following news that the company had received a double rating downgrade from Exane BNP Paribas analyst Karl Ackerman. Ackerman cut the stock's rating from “Outperform” (Buy) to “Underperform” (Sell) and lowered the price target to $67 from $140. Citing the reason for the downgrade, the analyst added: “While some investors correctly assess the downside risk to near-term results, we expect Micron to underperform AI rivals through 2025 due to an oversupply of HBM capacity (High Bandwidth Memory) leads to a faster than expected increase.” Conventional DRAM ASP market correction (average selling prices) 34%/45% below consensus CY25/CY26 EPS.

The story continues

This means the analyst believes an oversupply of HBM chips (a type of memory design that achieves high speed by stacking memory chips) will weaken Micron's pricing power. This could lead to lower profit margins and make it more difficult for the company to achieve its short-term profitability goals.

Micron Technology is up 33.5% year-to-date but is trading at $109.94 per share, still 28.4% below its 52-week high of $153.45 set in June 2024. Investors who bought $1,000 worth of Micron Technology stock 5 years ago would be considering a $2,263 investment now.

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