Micron Technology, a prominent memory chip-manufacturer, is poised to deliver a pivotal litmus test for investors seeking solace in the midst of a tumultuous tech market. The company is scheduled to unveil its financial results on Wednesday after the market closes, a development keenly awaited as an indicator of a potential turnaround in its primary market, which has weathered a severe downturn. This revelation follows a recent correction in the S&P 500’s tech index, plummeting 10% from its zenith in July, a plunge attributed to a resolute Federal Reserve maintaining interest rates at decade-long levels.
Sylvia Jablonski, Co-Founder and Chief Investment Officer at Defiance ETFs, observed, “Higher rates have weighed on and reversed the massive AI rally we saw pre-August, but all of that can potentially come back into play if we see positive earnings.” Jablonski emphasized that favorable outcomes on both the top and bottom lines for Micron could potentially bolster confidence in the monetization of Artificial Intelligence.
On Wednesday, Micron shares experienced a modest upswing of 0.3%.
Throughout this year, Micron, along with industry counterparts such as Samsung Electronics Co. and SK Hynix Inc., grappled with a sharp decline in memory chip orders, attributed to sluggish demand for smartphones and personal computers. Although these markets have yet to witness robust recovery, a reduction in excess inventory offers a glimmer of hope. This shift may serve to harmonize supply and demand dynamics, empowering companies to capitalize on a surge in orders for their highest-performing products, critical components for AI-related computing systems.
Market sentiment already reflects optimism regarding Micron’s impending trajectory. Among the 38 analysts tracking the company, only two advocate a sell recommendation. The overwhelming majority endorse purchasing Micron stock, according to data from Bloomberg. Micron shares are valued at 3.5 times projected sales over the next year, eclipsing the decade-long average of 2 times.
In contrast to the Nasdaq 100, which witnessed a nearly 6% September slump and recently touched its lowest point since early June, Micron experienced a more modest decline of 2.9%. Analysts anticipate a resurgence in the company’s revenue starting in the first quarter, following a substantial fiscal year sales dip. Should Micron’s forecast meet or surpass these projections, it will further fuel the 36% year-to-date surge in the stock.
A focal point of interest for analysts lies in high-bandwidth memory (HBM), a critical chip variant essential for AI software training. HBM is instrumental in colossal data centers employing Nvidia Corp.’s accelerator chips, demanding swift access to vast troves of information. Memory chips supporting processors as short-term storage must facilitate rapid data retrieval to avert potential bottlenecks.
Mizuho analyst Vijay Rakesh contends that there is currently insufficient HBM supply to meet 2024 demand. Rakesh anticipates that these higher-performing chips will yield improved pricing and margins, offering respite from one of the most severe downturns the volatile memory chip sector has endured.
However, not all industry experts are convinced that Micron’s trials have abated. Morgan Stanley analyst Joseph Moore contends that the uptick in memory pricing is a consequence of reduced production rates by Micron and its peers, distinct from genuine demand resurgence. Moore foresees ongoing losses for the company extending into 2024, cautioning that the stock may already be presuming favorable conditions yet to materialize.
In conclusion, the upcoming financial report of Micron Technology stands as a pivotal test for investors, offering a glimpse into the company’s potential to navigate through the challenges and uncertainties of the tech market.
Source: Bloomberg
