AI Chip Demand Soars, But Micron’s Stock Plummets
Surprising Guidance Sparks Selloff
Micron Technology’s stock took a drastic hit on Thursday, plummeting over 17% despite the company’s strong earnings report. The memory chipmaker’s guidance for the current quarter fell short of Wall Street’s expectations, sparking a selloff. Micron expects revenue between $7.7 billion and $8.1 billion, significantly lower than the anticipated $9 billion.
AI Chip Sales Boom, Traditional Chip Sales Slump
The chip industry is witnessing a distinct trend: artificial intelligence (AI) chip sales are surging, while traditional chip sales are declining. Micron’s high bandwidth memory (HBM) chips, used in Nvidia’s latest graphics processing units (GPUs), are in high demand. These GPUs power AI workloads in data centers, driving growth for Micron.
Data Center Revenue Soars
Micron’s CEO, Sanjay Mehrotra, highlighted the company’s strong data center revenue, which now accounts for over 50% of total revenue. This growth is driven by the increasing adoption of AI technology. However, Mehrotra acknowledged that consumer-oriented markets are weaker in the near term.
Mixed Bag for Micron’s Chip Sales
While HBM chip sales rose over 50% in the November quarter, revenue from mobile phone chips fell 19%. This mixed performance has led analysts to reassess their outlook on the company.
Analysts Weigh In
Bank of America analyst Vivek Arya downgraded Micron’s stock to Neutral from Buy, citing pressure from weak demand for personal computer and smartphone chips. Other analysts, including those from JPMorgan, Raymond James, and TD Cowen, lowered their price targets but maintained their Buy ratings.
AI Market Opportunity Beckons
Micron remains optimistic about the surging AI market opportunity for its HBM semiconductors. The company projects the HBM market to grow to $30 billion in 2025, up from its prior forecast of $25 billion. Micron expects its own HBM revenue to soar from several hundred million in fiscal year 2024 to multiple billions of dollars in 2025.
Stock Reaction Surprises Analysts
TD Cowen analyst Krish Sankar expressed surprise at the stock’s reaction, given the well-understood weakness in near-term memory pricing. Sankar reiterated his Buy rating but lowered his price target to $125 from $135. Micron shares stood at roughly $90 early Thursday.
Fiscal First Quarter Results
Micron’s earnings per share of $1.79 surpassed expectations, while its revenue of $8.7 billion was in line with forecasts. Despite the strong results, the company’s guidance and stock reaction have raised concerns about its near-term prospects.
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