Micron Technology’s stock experienced a significant drop of 17% on Thursday following the company’s announcement of weaker-than-expected guidance and concerns about declining demand in the consumer chip market. This downturn comes despite strong earnings reported for the recent quarter.
Micron Technology stock chart showing a downward trend.
Micron’s stock price plummeted to approximately $85.77 per share in morning trading after the company released its financial results. While the company exceeded analysts’ expectations with an 84% surge in revenue to $8.71 billion and earnings per share of $1.79 (compared to the anticipated $1.75), the outlook for the coming period spooked investors.
A key driver of Micron’s recent success has been its data center business, which saw a 46% increase in the last quarter and now accounts for over half of the company’s total sales. Furthermore, Micron projected robust growth in server-unit shipments driven by the ongoing boom in Artificial Intelligence (AI) and upgrades to traditional server infrastructure.
Server racks in a data center, symbolizing Micron's strong performance in this sector.
However, the company’s forward-looking guidance fell short of market expectations. Micron anticipates revenue of around $7.9 billion, significantly lower than the consensus estimate of $8.98 billion. The projected adjusted earnings per share of $1.43 also lagged behind the anticipated $1.91. Micron attributed this weaker outlook to a slowdown in consumer chip demand, as consumers delay personal computer upgrades and auto sales remain below projections.
Analysts at UBS commented on the disappointing guidance, stating that it missed even the most pessimistic projections and highlighted the persistent challenges in consumer markets. Bank of America downgraded Micron’s stock to neutral and reduced its price target from $125 to $110, citing concerns about slower gross margin expansion. They noted that historically, Micron’s stock performance has been subdued when gross margin expansion is muted.
Despite the negative short-term outlook, Micron’s CEO, Sanjay Mehrotra, expressed optimism about a recovery in consumer markets in the second half of the fiscal year. He emphasized the company’s strategic positioning in high-margin market segments and its ability to capitalize on AI-driven growth.
Sanjay Mehrotra, CEO of Micron Technology.
UBS analysts, while lowering their price target from $135 to $125, suggested the current stock dip might present a buying opportunity. They pointed to positive developments such as the expanding customer base for Micron’s high-bandwidth memory chips. This specialized memory is crucial for high-performance computing, including AI applications, and indicates potential for future growth. The contrasting short-term challenges and long-term potential create a complex investment scenario for Micron Technology.
