The past six months have been terrible for Micron Technology (MU -1.46%) investors, as shares of the memory specialist have dropped 35%. The bad news is that the company’s fortunes aren’t likely to change anytime soon, following the release of the company’s fiscal 2025 first-quarter results on Dec. 18, covering the three months that ended Nov. 28.
Shares of Micron fell 16% after the company reported its results. Let’s see why that was the case and check if the stock’s steep decline could be an opportunity for savvy investors to buy Micron thanks to its solid artificial intelligence (AI)-fueled prospects.
Results were outstanding, but guidance was the problem
Micron reported fiscal Q1 revenue of $8.7 billion, an outstanding 84% increase from the prior-year period. Even better, the company swung to a profit of $1.79 per share from a loss of $0.95 in the same quarter last year, driven by a terrific surge in its margins. Micron reported a non-GAAP gross margin of 39.5% for fiscal Q1, up from just 0.8% in the same quarter last year.
Its operating income margin surged to 27.5% from a negative reading of 20.2% in the same quarter last year. Micron benefited from a big surge in demand from data centers, where the rapid deployment of chips for AI model training and inference applications has created huge demand for computing and storage memory.
More specifically, Micron’s data center revenue surged a massive 400% year over year in the previous quarter, accounting for more than half of its top line. The good part is that Micron is now expecting stronger growth in the data center end market in 2025. The company expects the high-bandwidth memory (HBM) market to generate $30 billion in revenue in 2025, compared with the prior expectation of $25 billion.
HBM demand has been increasing at an incredible pace, as this market was worth an estimated $4 billion last year. Companies such as Nvidia and AMD have been packing higher-capacity HBM into their AI accelerators to boost performance, which explains why the size of this market is expected to grow more than sevenfold in the space of just two years.
Not surprisingly, Micron is focused on ramping up the output of its HBM chips next year, as it tries to satisfy demand from the likes of Nvidia, which will be using the former’s chips in its next-generation Blackwell systems. On its latest earnings conference call, Micron management pointed out that its latest generation of HBM is designed into Nvidia’s Blackwell B200 and GB200 platforms.
The relationship with Nvidia could give Micron a big boost next year, as the former is expected to see a 55% jump in shipments of its high-end graphics processing units. The good part is that Micron is looking beyond Nvidia as well to make the most of the booming HBM demand. It has started high-volume shipments of HBM to a second customer this month and will start shipping to a third customer in the first quarter of 2025.
As such, there is a solid chance that Micron’s data center business will continue to clock impressive growth in 2025 as well. However, there is one segment that’s weighing on the chipmaker and led to the sharp sell-off following its earnings report.
Weak consumer-specific demand weighed on the guidance
Though Micron enjoyed outstanding growth in the data center business last quarter, the weaker-than-expected demand from consumer-oriented markets such as smartphones and personal computers (PCs) weighed on the company’s outlook. As CEO Sanjay Mehrotra pointed out:
We had previously shared our expectation that customer inventory reductions in the consumer-oriented segments and seasonality would impact fiscal Q2 bit shipments. We are now seeing a more pronounced impact of customer inventory reductions. As a result, our fiscal Q2 bit shipment outlook is weaker than we previously expected. We expect this adjustment period to be relatively brief and anticipate customer inventories reaching healthier levels by spring, enabling stronger bit shipments in the second half of fiscal and calendar 2025.
Micron management says that the PC recovery is taking longer than expected. However, the good part is that the chipmaker is forecasting a massive increase in the amount of memory content in each PC thanks to on-device AI capabilities. The chipmaker says AI PCs will require “a minimum of 16GB of DRAM for entry level PCs and 24GB and above for higher-end segments, versus 12GB average PC content last year.”
Micron believes that the growth of the PC market will be weighted toward the second half of 2025, and it has a similar view on the smartphone market as well, where AI is driving an increase in memory consumption. Micron investors should note that both the generative AI smartphone and PC markets are expected to clock outstanding growth in 2025 and beyond, so the weakness in consumer-oriented markets shouldn’t last for long.
Moreover, Micron’s guidance for the current quarter isn’t all that bad. The company’s top-line view of $7.9 billion missed the ambitious consensus estimate of $8.98 billion by a big margin, but it points toward a healthy year-over-year jump of 36%. What’s more, Micron expects to deliver earnings of $1.43 per share in the current quarter, compared with earnings of $0.42 per share in the same quarter last year.
The bottom-line expectation is lower than Wall Street’s estimate of $1.91 per share, but the fact that Micron’s bottom line is on track to jump by 240% year over year in the current quarter cannot be ignored. Also, as the company expects the situation in the consumer-oriented markets to improve as the year progresses, it won’t be surprising to see Micron’s growth trajectory improving in the coming quarters.
Analysts are expecting Micron to deliver $6.93 per share in earnings in the current fiscal year, which would be a massive improvement over last year’s bottom line of $1.30 per share. Assuming Micron indeed hits that mark and it trades at 28 times earnings after a year, in line with the tech-laden Nasdaq-100‘s forward earnings multiple, its stock price could hit $194. That would be a big jump from Micron’s current stock price of $90.
With Micron shares currently trading at just 12 times forward earnings, investors are getting a solid deal on this AI stock that has been delivering outstanding earnings growth and is likely to sustain its momentum in 2025. That’s why savvy investors can consider using Micron’s post-earnings decline as an opportunity to buy more shares, considering that AI is set to drive outstanding growth in its earnings, which could be rewarded with impressive upside on the stock market.
