Micron’s FQ4 Guidance Falls Short of Expectations, But Long-Term Prospects Remain Strong
Micron Technology (MU) recently released its fiscal fourth quarter (FQ4) guidance, which did not quite meet the lofty expectations of some analysts. However, the company’s strong fundamentals and positive outlook continue to support a bullish stance. Micron’s fundamentals are on a robust upward trajectory, with anticipated improvements in average selling prices (ASPs), revenues, margins, and earnings per share (EPS) projected to continue accelerating. Consequently, the OUTPERFORM rating is reaffirmed, with a maintained price target (PT) of $170 and largely unchanged 2026 EPS projections.
Key Highlights from Micron’s FQ4 Outlook and 2025 Prospects
Implied ASP Growth
Micron’s guidance implies an approximate 10% quarter-over-quarter (Q/Q) ASP growth for FQ4, aligning closely with earlier projections for similar price improvements in the third calendar quarter (CQ3). With FQ4 including one month of CQ2—an accelerated period for ASP improvement—and an adjusted product mix favoring more eSSD, DDR5 RDIMMs, and High Bandwidth Memory (HBM), it appears that management’s forecast may be conservative. Historically, Micron has tended to understate its guidance, suggesting potential for better-than-expected price improvements.
Positive HBM Commentary
Micron shipped about $100 million in HBM during FQ3, putting the company on track to exceed its previous outlook of several hundred million dollars in shipments. These shipments are margin accretive, benefiting both DRAM and overall margins. The company reiterated plans to achieve HBM market share by calendar year (CY) 2025, consistent with current DRAM industry share. Notably, Micron has sold out its HBM volume through 2025, with most of the pricing already negotiated. This robust performance in HBM is not fully reflected in current models, suggesting significant upside potential in both the near term and through 2025.
Limited Incremental Bit Production
Micron’s DRAM bit shipments were slightly down in FQ3 and are projected to remain flat in FQ4. NAND bit shipments are expected to decline year-over-year (Y/Y) in FQ4. While the company is significantly increasing its capital expenditure (capex) for fiscal year 2025, the incremental spend is primarily allocated to new site construction (which will not add bits until 2027/2028) and HBM capacity. This cautious approach to new capacity aligns with the broader industry’s trend of avoiding aggressive capacity expansions, reinforcing a positive outlook for memory market dynamics.
Valuation and Target Price
The target price for Micron remains based on a ~9x multiple, applied to fiscal year 2026 projections. A high single-digit to 10x multiple range is deemed appropriate for a commodity component supplier using mid to peak cycle earnings estimates. This valuation underscores confidence in Micron’s long-term performance and market position.
Micron’s growth in NAND pricing, up 20%, significantly outperformed implied forecasts from Western Digital Corporation (WDC). This discrepancy suggests meaningful upside for WDC’s NAND operations, although WDC’s price appreciation may lag due to its greater exposure to retail pricing and less eSSD content. Additionally, higher ASPs and gross margins (GMs) for HDDs indicate that WDC’s results may substantially exceed initial management outlooks.
Micron maintained its outlook for PC and smartphone markets, projecting low single-digit growth. However, a strategic inventory build at client device customers suggests potential upside in these markets. Improved builds and end demand in both sectors support a positive outlook for Micron’s end markets.
Data Center and Server Markets
Server unit shipments are expected to increase in the mid to high single-digit percentage range in CY’24, driven by strong demand for AI servers and modest increases in traditional servers. Management anticipates record levels of data center revenue in FY’24, with significant growth projected for FY’25. Micron’s progress in HBM bodes well for the industry, with volume shipments of HBM3E parts generating over $100 million in FQ3. The positive outlook for HBM revenue contributions remains unchanged, with several hundred million dollars expected for FY’24 and multiple billions for FY’25.
PC, Gaming, and Smartphone Markets
Micron continues to expect low single-digit growth in PCs and gaming, with a refresh cycle anticipated to boost demand by year-end. AI PCs are projected to drive increased DRAM and NAND content, supporting inference at the edge. In the smartphone market, unit volumes are expected to grow in the low to mid-single digit percentage range in CY’24, with new AI-enabled smartphones driving increased memory content per device.
Automotive and Industrial Markets
Micron anticipates further content growth in automotive as generative AI-based technologies are adopted in vehicles. On the industrial side, near-term demand uncertainty is noted, but the long-term outlook remains positive.
Despite the FQ4 guidance not meeting higher expectations, Micron’s strong fundamentals and strategic positioning in key markets support a positive outlook. Continued advancements in HBM, cautious capacity expansion, and robust demand across various sectors underscore Micron’s potential for sustained growth. The OUTPERFORM rating and $170 price target reflect confidence in Micron’s ability to capitalize on these opportunities and deliver strong financial performance in the years ahead.
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