Investor Expectations High for AI-Driven Growth, Despite Weakness in PCs and Smartphones
Micron Technology (MU) is set to report its latest earnings, and investors are keen to see if the chipmaker can rekindle enthusiasm for artificial intelligence (AI) chips, a key growth area for the company. Like its competitors, Micron has been riding the AI wave, but other markets, such as personal computers (PCs) and smartphones, remain lackluster, raising concerns over the company’s broader performance.
Strong AI Demand vs. Sluggish Core Markets
Micron’s high-bandwidth memory chips, critical for AI data processing, are expected to drive strong growth in the upcoming earnings report. Analysts are particularly interested in how AI-related demand will shape Micron’s financials. A positive outlook on this front could reinvigorate the AI chip trade, which lost momentum after mixed earnings from Broadcom Inc. (AVGO) and Nvidia Corp. (NVDA) Despite Micron’s promising AI prospects, the company has struggled in its other core markets, particularly PCs and smartphones. The demand in these areas remains weak, dampening investor enthusiasm.
Micron experienced this dynamic in its last earnings report when it delivered an 80% revenue growth driven by AI-related products, but its outlook underwhelmed a market hungry for more aggressive projections. Since then, Micron’s shares have dropped nearly 40% from their peak in June, underperforming many of its semiconductor peers.
Investor Sentiment Mixed Ahead of Earnings
Despite recent declines, some investors are beginning to view Micron as a bargain. Christian Fromhertz, CEO of Tribeca Trade Group, noted that Micron’s stock may benefit from low expectations this quarter. “Micron was a victim of high expectations last quarter, but the stock has come down quite a bit since then,” said Fromhertz. “It seems like people think it’s worth a shot at these levels.”
A positive earnings report could see Micron’s stock climb past the $100 mark, with potential to reach its 200-day moving average of $105. However, if the company fails to impress, a drop below $86 could signal bearish momentum. Micron shares were largely unchanged ahead of its earnings release, but there are signs of growing optimism in the options market. The ratio of put to call open interest is half of what it was a year ago, indicating increasing bullish sentiment.
DRAM Challenges and Skepticism Persist
While Micron is banking on AI-driven growth, its near-term prospects are clouded by challenges in its traditional markets. The DRAM memory chip market, a key revenue driver, remains weak, with Citigroup Inc. predicting a turnaround within three to six months. Until then, Micron shares may remain under pressure. Although more than 90% of analysts have a “buy” rating on the stock, there is a notable divergence in sentiment. Citigroup’s analyst Christopher Danely has expressed concerns about near-term performance, while BNP Paribas Exane downgraded Micron to “underperform,” with a $67 price target—the lowest on Wall Street.
Despite this, the longer-term outlook for Micron is more optimistic. The average analyst price target suggests Micron could rise by over 50% in the next 12 months, making it one of the most attractive stocks in the semiconductor sector. At 10 times forward earnings, Micron is also one of the cheapest stocks on the Philadelphia Stock Exchange Semiconductor Index, particularly when compared to Nvidia, which trades at over 32 times forward earnings.
AI as a Potential Sector-Wide Catalyst
Some investors see Micron’s upcoming earnings as a potential turning point, not just for the company, but for the entire AI chip market. Daniel Morgan, senior portfolio manager at Synovus Trust, believes Micron could act as a sector-wide catalyst. “The worst is behind it, and the AI theme creates the potential for outperformance over the next several quarters,” said Morgan. If Micron can deliver on its AI promise, it could breathe new life into a market eager for signs of sustainable AI-driven growth.
While many investors remain cautious due to the company’s challenges in other markets, a positive report could validate the excitement around AI and boost sentiment across the sector. Micron’s ability to balance AI growth with its broader market challenges will be key to its future performance and investor confidence.
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