Micron Technology – New Growth Cycle

30 сент.

Key Supporting Arguments

▪ Rising sales of AI-enabled smartphones and PCs
▪ Favorable pricing environment for memory chips in the upcoming quarters
▪ A quarterly report that will be released on September 25 is expected to be strong and provide a more positive outlook for this quarter and the year
▪ Micron Technology has resumed its buyback program

Investment Thesis

Rising sales of AI-enabled smartphones and PCs. The robust sales of AI smartphones, including Apple and Samsung devices, along with a new PC refresh cycle in the coming quarters, should bolster sales of the company’s memory chips. In the second quarter of 2024, sales of AI-enabled PCs increased by more than 100%, contributing 85% to the quarterly sales growth. According to IDC’s initial estimates, PC and smartphone sales growth will further accelerate in the third quarter, and the penetration of memory chip-intensive AI devices will continue to expand. Micron Technology’s management projects that AI-enabled PCs will have on average 40-80% more DRAM, and DRAM in AI smartphones will increase by 50- 100%, which will bolster the growth in demand for DRAM chips. Minimum SSD capacity for AI-enabled PCs has already doubled, while the expansion of SSD capacity in smartphones is driven by an increasing share of premium fullconfigured devices in total sales. Major U.S. telecommunications companies have independently reported extremely strong demand for iPhone 16, with consumers favoring more expensive models.

Favorable pricing environment for memory chips in the upcoming quarters. Recent data from TrendForce and comments from Micron management suggest that pricing environment remains favorable. DRAM chip prices are expected to rise by approximately 11% through the third quarter of 2024. Since August, Samsung and SK Hynix have raised the prices of DDR5 chips by 15-20%, and Micron will undoubtedly follow suit. This price increase, combined with a growing share of HBM sales, will significantly boost Micron’s ASP of DRAM chips in the fourth quarter. Although price trends in the NAND segment have been slightly weaker than expected because customers over-accumulated inventories in the first half of 2024 in anticipation of higher prices. Nevertheless, the overall positive trend in the NAND segment remains intact.

The quarterly report to be released on September 25 is supposed to be strong, with a more optimistic outlook for the quarter and the year. In early August, Micron Technology resumed its share buyback program, indicating management’s confidence in the company’s business performance. Ahead of the report, several investment firms have revised downward their financial forecasts for the company, which reduces the risk of unmet expectations. Contracts with industry leaders, anticipated price increases, and the rising shipments of HBM memory and SSDs for the B2B segment set a positive tone for Micron Technology, whose stock has been heavily oversold in recent months.

Our price target for Micron Technology (MU) over a two-month horizon is $109, with a “Buy” rating. We recommend setting a stop-loss at $78.