Driven by strong demand for its high-bandwidth memory (HBM) chips, essential for AI data centers, and higher prices for both DRAM and NAND memory chips, Micron (MU, Financial) surpassed Q3 EPS and revenue estimates. However, the company's impressive results and optimistic Q4 guidance didn't meet investors' high expectations.
- Q4 revenue forecast: $7.40-$7.80 billion, reflecting a 90% year-over-year growth at the midpoint. Despite this impressive growth, it only slightly exceeded analysts' estimates, falling short of the high bar set by previous quarters.
- Comparison with NVIDIA (NVDA, Financial): While MU's performance was strong, it didn't match NVDA's blowout Q1 results and Q2 guidance, highlighting that MU isn't yet on the same level in the AI sector. MU still relies heavily on PC and smartphone markets, expected to grow modestly in 2024.
- AI market potential: AI is set to become a larger revenue driver for MU. New AI smartphones, which will use about 50% more DRAM content than non-AI phones, position MU well for future growth.
- Data center revenue: Increased by over 50% in Q3 to a record high, driven by strong HBM demand. Supply constraints have limited MU's HBM3E chipset production, with the company selling out for the rest of CY24 and 2025 after ramping up production in Q2.
- Increased capex: To meet HBM demand, MU plans to increase spending, with a capex estimate of approximately $8 billion for FY24. CEO Sanjay Mehrotra indicated a significant capex ramp-up in FY25, which may be impacting the stock price.
The key takeaway is that MU's business is thriving due to AI-driven catalysts, though this isn't reflected in today's stock performance. With the stock up nearly 70% year-to-date and trading at a forward P/E of about 20x, there was little margin for error, and MU's guidance prompted profit-taking.
