Micron Makes Memorable Beat

Memory chip giant Micron Technology MU released on late Wednesday fiscal-fourth quarter financial results, revealing adjusted earnings per share of $1.18 (unadjusted EPS: $0.79) on revenue of $7.75 billion. These top- and bottom-line results both beat Wall Street's expectations, while the sales print was good enough for year-over-year growth of 93.3%. In full disclosure, readers will see below that I am short MU at the moment. This is a small position left over from trading the shares overnight. I came into the earnings release with no position. Additionally, this position will have no bearing on my opinion concerning Micron and the position was not meant to last past this morning. The adjustment was made almost entirely for the expense of stock-based compensation.

Operations and Improvements

As revenue was growing 93.3% to $7.75 billion, the cost of goods sold increased just 12.7% to $5.013 billion. This left a gross profit of $2.737 billion, up 49.4% sequentially, an up from the year-ago comparison of a $435 million loss. That took the gross margin from -10.8% to 35.3%. Adjusted gross margin grew from -9.1% to 36.5%.

Operating expenses increased 17.2% to $1.215 billion, leaving an operating income / loss of $1.522 billion, up from the year-ago comp of a loss of $1.472 billion. That took the operating margin from -36.7% to 19.6%. On an adjusted basis, operating margin improved from -30.1% to 22.5%.

After accounting for interest, other income and expenses, and taxes, unadjusted net income improved to $887 million from the year-ago comp of a loss of $1.43 billion. That works out to $0.79 per fully diluted share, up from the loss per share of $1.31 for the same period last year. Adjusted net income printed at $1.472 billion, up from last year's loss of $4.862 billion. That works out to $1.18 per fully diluted share, up from -$1.07 for last year's comp.

Quoting the CEO

President and CEO Sanjay Mehrotra commented in the press release, but did not participate in the post-earnings conference call. His words: “Micron delivered 93% year-over-year revenue growth in fiscal Q4, as robust AI demand drove a strong ramp of our data center DRAM products and our industry-leading high bandwidth memory. Our NAND revenue record was led by data center SSD sales, which exceeded $1 billion in quarterly revenue for the first time. We are entering fiscal 2025 with the best competitive positioning in Micron's history. We forecast record revenue in fiscal Q1 and a substantial revenue record with significantly improved profitability in fiscal 2025.”

Guidance Beats

For the current quarter, which for Micron is fiscal first quarter 2025, MU projects net revenue of $8.7 billion, give or take $200 million. On top of the reported Q4 beats, with the street looking for something close to $8.25 billion here, this too was bullish for the stock overnight. Gross margin is seen at 38.5%, give or take 1% on an unadjusted basis. After adjustments, Micron sees a gross margin of 39.5%, give or take 1%. For a reference point, unadjusted gross margin was 35.3% for Q4 and 22.4% for the full fiscal year just completed.

Finally, fully diluted first-quarter EPS is seen at an unadjusted $1.54 or an adjusted $1.74. MU issues $0.08 worth of leeway on either side of those midpoints. This EPS guidance is about a dime above what had been the consensus view. Another beat for Micron.

Wall Street's Take

Since Micron released these earnings, I have come across 19 highly rated sell-side analysts who have opined on the stock. Among the 19, there are 18 "buy" or buy-equivalent ratings and one "equal-weight" rating, which is considered to be hold-equivalent. One of our "buys" did not set a target price, so we have just 18 of those to work with.

Across the 18 remaining analysts, the average target price is $163.11 with a high of $250 (Hans Mosesmann of Rosenblatt Securities) and a low of $114 (Joseph Moore of Morgan Stanley). Once omitting those two as potential outliers, the average target across the other sixteen drops to $160.75.

My Take and the Chart

A lot of this improvement was driven by HBM, or "high bandwidth memory" which underscores the business-to-business demand for all things AI-related right now. Consumer demand for PCs and smartphones did not turn around Micron's performance and expectations on a dime. These AI models, however, require a lot of HBM chips, making those who can provide the AI crowd with memory are not almost as important as those designing the high-end chips that act as the brains behind AI.

I am long Nvidia NVDA, and Advanced Micro Devices AMD. I am even long Intel INTC now that, despite miserable performance at the managerial level, it has seen the news flow (and the flow of federal funds) move in its favor. I should have been long memory. I knew the AI models needed it. I thought about it hard. I thought maybe I had another quarter. I thought wrong. That said, Micron is up a rough 16% early. Western Digital WDC is up more than 5% in sympathy. It's past time to be long Micron. Western Digital does not report for another month.

Readers will see MU gapping up on Thursday, and trying to break out past a $111 pivot created by a very clear double-bottom reversal pattern. Relative Strength has spiked, as the daily Moving Average Convergence Divergence has moved toward a bullish posture, but still needs to get all three components above the zero-line. Interestingly, the stock suffered a "death cross" about two weeks ago and has not experienced a serious "down" day since.

I plan to cover my small short once this article is public. It's a small position with an average price of $109.83, so I'm just giving back some overnight gains. I'll live. But if I can get long this stock in an intelligent manner, as it is sitting atop a gap that will need a $96 tick to fill, my target based on this set-up would likely be around $140.

At the time of publication, Guilfoyle was long NVDA, AMD,Short MU equity.