What Happened:
Shares of memory chips maker Micron (NYSE:MU) fell 6% in the morning session after the stock received a double rating downgrade from Exane BNP Paribas analyst Karl Ackerman. Ackerman lowered the stock's rating from Outperform (Buy) to Underperform (Sell) and cut the price target from $140 to $67.
The analyst cited the reason for the downgrade, adding, "While some investors correctly anticipate downside risk to near-term results, we think Micron will underperform AI peers through '25 as HBM (High Bandwidth Memory) capacity oversupply leads to a faster than anticipated market correction of conventional DRAM ASPs (Average Selling Prices). We are 34%/45% below consensus CY25/CY26 EPS."
This means the analyst anticipates that an oversupply of HBM chips (a type of memory design that achieves high speed by stacking memory chips) will weaken Micron's pricing power. This could lead to lower profit margins and make it harder for the company to meet its near-term profitability goals.
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What is the market telling us:
Micron Technology’s shares are quite volatile and over the last year have had 16 moves greater than 5%. In context of that, today’s move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 6 months ago, when the stock gained 18.4% on the news that the company reported first-quarter results with revenue and EPS outperforming Wall Street's estimates. The topline outperformance was broad-based across business lines and product types. Notably, Micron called out strong AI server demand amid a more favorable operating environment.
On the other hand, its inventory levels increased. Looking ahead, its revenue, gross margin, and EPS guidance of $6.6 billion, 25.5%, and $0.17 per share for the next quarter crushed analysts' projections. During the earnings release, the company declared a quarterly dividend of $0.115 per share,
Following the results, there was a palpable uplift in sentiments by Wall Street analysts. Notably, Argus Research upgraded the stock's rating from Hold to Buy, citing "rising memory prices, a broad recovery in demand, and the AI-driven demand surge in [the] data center." Overall, this was a fantastic quarter.
Micron Technology is up 5.1% since the beginning of the year, but at $86.55 per share it is still trading 43.6% below its 52-week high of $153.45 from June 2024. Investors who bought $1,000 worth of Micron Technology’s shares 5 years ago would now be looking at an investment worth $1,716.
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