*While Micron shares are trading off this morning, looking past the capacity-constrained current quarter shows a clearer view on the AI demand picture.
*Strong sequential AI revenue growth for data center bodes very well for Nvidia and Marvell shares
*Matching our thinking, Micron sees AI-on-device solutions driving PC and smartphone upgrade cycles starting this year and accelerating next year
We hope you enjoyed yesterday’s quarterly, members-only call with Chris Versace and Conway Gittens. It afforded Versace the opportunity to appear on Fintech.TV, the Schwab Network and Yahoo! Finance. Severe thunderstorms in the Northeast and Mid-Atlantic disrupted his travel plans last night.
Below, we have comments on Micron’s (MU) earnings and related portfolio positions, and we’ll have comments out later today on the bank stress tests as well as quarterly results from Jefferies (JEF) , and what they mean for Morgan Stanley (MS) and Bank of America (BAC) . We’ll also be holding Office Hours today between 12 p.m. and 1 p.m. ET.
With that roadmap for today and limited connectivity for Versace, let’s get to it:
Earlier this year, we discussed how Big Tech stocks were priced to perfection heading into the March quarter earnings season. Companies that delivered in-line results or better-than-expected results but with in-line forward guidance saw their shares get hit.
That’s what’s happening with the shares of MU today. Following the more than 85% year-to-date move in MU shares, the company topped market expectations last night for its May quarter but only offered guidance that matched consensus expectations. It’s that disappointment that is weighing on MU shares this morning despite the company’s favorable comments for 2024 and outlook for an even stronger 2025 due to AI and its impact on data center, PCs and smartphones.
What’s going on is that capacity is currently constrained and customers are inking longer-term supply agreements to secure capacity, which tells us demand is outstripping supply. We’ve heard similar comments, especially for the data center market, and that tightness is driving pricing for Micron, which in turn is leading several Wall Street firms to boost their price targets for Micron this morning.
While this should be taken as good news, in the past we have seen overheated demand lead to double booking in other industries — but those tend to be for heavy equipment and, therefore, more cyclical ones. Because we are in the early innings of AI and its adoption, that scenario is less likely, but it is something we will be looking out for.
As it relates to the portfolio, Micron’s end-market comments were supportive for our positions in Nvidia (NVDA) , Marvell (MRVL) , Qualcomm (QCOM) , Apple (AAPL) , Universal Display (OLED) and Applied Materials (AMAT) .
AI drove a 50% sequential increase in Micron’s data center revenue and is on track to reach record levels in fiscal year 2024. Data center industry server unit shipments are expected to grow in the mid-to-high single digits in calendar year 2024, driven by strong growth for AI servers and a return to modest growth for traditional servers. Data center revenue for Micron is forecasted to grow significantly from there in fiscal year 2025. This tracks with comments as well as expectations for both Nvidia and Marvell.
Expect next-gen AI PCs to make up a meaningful portion of total PC units in calendar year 2025, growing each year until most PCs ultimately support next-gen AI PC specs. This tracks with other forecast and matches our expectation for the PC upgrade cycle that should benefit Microsoft (MSFT) , but also QCOM's Snapdragon business.
Micron sees smartphone unit volumes in calendar year 2024 on track to grow in the low- to mid-single-digit percentage range, which implies a higher volumes in 2H 2024. During its earnings call, Micron discussed Apple, Samsung and other smartphone vendors announcing new AI on device models, and Micron expectation for that leading a smartphone refresh cycle. That matches our thinking and why we own AAPL, QCOM and OLED shares in the portfolio.
Also during its earnings call, Micron shared that its average quarterly CapEx in fiscal 2025 will be meaningfully above the $3 billion it expects to spend in the current August quarter. That spending is expected to continue into fiscal 2025, which begins with Micron’s November quarter, with management targeting cap-ex around mid-30% of fiscal 2025 revenue. While Micron’s capital spending isn’t as large as that of Taiwan Semiconductor (TSM) , Intel (INTC) or Samsung, this does support the outlook for semi-cap equipment and our AMAT shares. Should we hear similar comments from TSM, Intel and Samsung in the coming weeks, odds are we may need to once again boost our AMAT price target.
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At the time of publication, TheStreet Pro Portfolio was long AAPL, AMAT, BAC, MS, MSFT, MRVL, NVDA, QCOM and OLED.