Micron Technology, Inc. (NASDAQ: MU) proved the doubters and analysts wrong with a Babe Ruth-style homerun earnings report that saw revenues nearly double YoY driven by the artificial intelligence (AI) boom. The irony is that at least three analysts downgraded, trimmed estimates or lowered price targets for Micron ahead of its fiscal fourth-quarter earnings report, sending shares as low as $84.12 on Sept. 12, 2024. MarketBeat analysts thought otherwise, citing the 4 Reasons to Buy the 44% Price Drop and looking to Capitalize on Micron’s 24% Drop.
Micron's solid AI-driven demand-powered earnings report helped lift the computer and technology sector, driving shares of memory device makers like Western Digital Inc. (NASDAQ: WDC) and Seagate Technology Holdings plc (NASDAQ: STX) higher.
Micron Finally Reaps AI Boom Benefits With Strong Q4 Results
The market had been waiting for Micron to show evidence of benefitting from the AI boom, such as NVIDIA Co. (NASDAQ: NVDA) or Oracle Co. (NYSE: ORCL), as illustrated in their earnings blowouts. Yet, prior earnings and guidance were tepid and in line. This prompted many downgrades citing concerns that AI alone couldn't help slumping spot DRAM prices and inventory glut hurting its non-AI business like PCs and smartphones.
Micron's fiscal fourth-quarter of 2024 earnings report put all doubts to rest. The company reported EPS of $1.18, beating consensus estimates by 7 cents. Revenues surged 93.3% YoY to $7.75 billion, crushing consensus estimates by over $100 million. Non-GAAP gross margin rose to 36.5%, up from 28.1% sequentially.
AI and Data Centers Stole the Show
Robust AI demand fueled the surge in its data center DRAM products and industry-leading high bandwidth memory (HBM) chips, which have already been booked until 2025. However, Micron's recently announced acquisition of 2 Taiwan factories was meant to boost its capacity for these red-hot chops. HBM chips are tailor-made for AI applications like computer vision, natural language processing (NLP), and computer vision.
Micron Technology CEO Sanjay Mehrotra didn't downplay his excitement, stating, “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.” The company hit record NAND revenue led by data center and SSD sales, which exceeded $1 billion for the first time.
Micron Ups the Ante and Raises Guidance
Micron Technology raised its fiscal first-quarter of 2025 EPS to $1.66 to $1.82 versus consensus estimates of $1.52. First-quarter revenues are expected to be between $8.50 billion and $8.90 billion, crushing the $8.27 billion consensus estimates. Non-GAAP margin is expected to be around 39.5% +/- 1%.
Micron Technology EVP Manish Bhatia notes that the demand for traditional servers will continue to grow and improve as IT software deployment continues. Modest unit growth is expected for general server growth. However, AI servers are expected to be robust in 2025 as AI momentum continues. Micron has strengthened its position with HBM growth in AI servers with its high capacity 128 gigabyte DIMMs being used in AI servers for training and inferencing. Both enterprise AI and cloud servers are driving demand.
MU Stock Completes a Cup Pattern
A cup pattern forms on a swing-high lip line that falls to a swing-low, forming a rounding bottom that rises back up to retest the cup lip line. From there, a handle may form on a pullback or a continuation above the cup lip line, which acts as a new floor support.
MU formed its cup lip line around $110.39 and sold off to the $84.91 swing low, and the multiple pre-earnings report analyst downgrades and price cuts. MU rose to the $96.18 level driven by the divergence bottom formed on the daily RSI heading into its fiscal Q4 2024 earnings release.
The solid report triggered a price gap to the $110.58 gap fill level, competing with the cup pattern. MU will either use the cup lip line as a floor support and trend higher or pullback to form a handle, forming a potential cup-and-handle breakout if it successfully surges back up through the cup lip line. RSI rose to the 70-band. Fibonacci (Fib) pullback support levels are at $110.39, $104.48, $98.52, and $89.97.
Micron Technology’s average consensus price target is $146.04, and its highest analyst price target is $225.00. Analysts have given it 25 Buy ratings, one Hold rating, and one Sell rating.
With MU’s large gap following earnings, it’s best not to chase. Bullish investors can buy on pullbacks using cash-secured puts to take advantage of the elevated premiums at the fib pullback support levels to buy the dip and write covered calls to execute a wheel strategy for income in addition to the 0.41% annual dividend yield.
