Surprisingly, Micron technology(NASDAQ:MU) The stock had a disappointing performance on the stock market in 2024. It posted gains of just 20%, despite delivering solid results in recent quarters that point to outstanding growth in the company’s revenue and earnings.
Shares of the memory specialist are down 27% since hitting a 52-week high in mid-June. However, it won’t be surprising to see the stock’s fortunes change after Micron releases its first-quarter fiscal 2025 results on December 18.
Let’s see why this may be so.
Micron Technology is known for manufacturing memory chips for both computing and storage. This market is historically cyclical in naturedepending on the demand for personal computers (PC) and smartphones. This explains why the global memory market plunged nearly 39% last year, according to Gartner estimates, due to a 4.4% drop in shipments of PCs, smartphones and tablets.
The decline in device shipments was steeper in 2022, with a decline of 11.9%. Not surprisingly, Micron’s financial performance in 2022 and 2023 has taken a hit.
However, the memory industry has seen a change this year. It is driven by catalysts such as artificial intelligence (AI) which are driving an increase in memory consumption in multiple areas such as data centers, smartphones and PCs. For example, the use of high-bandwidth memory (HBM) in AI chips has increased at an incredible rate, as companies like NVIDIA They have been integrating this type of memory to make their AI accelerators more powerful.
Nvidia’s latest Blackwell B200 GPU is equipped with 192 gigabytes (GB) of HBM, which is a big improvement over the 96 GB in the previous generation H100 and 144 GB in the H200. This factor could help Micron deliver better than expected results. That’s because when Nvidia released its latest quarterly results last month, management noted that Blackwell’s production ramp-up is occurring at a stronger pace than expected.
Nvidia notes that it is on track to “exceed our previous Blackwell revenue estimate of several billion dollars as our supply visibility continues to increase.” This is good news for Micron, as the chipmaker has already been supplying its HBM chips to Nvidia. Increased demand for Blackwell could help it exceed market expectations. Catalysts like HBM also explain why the global memory market is expected to generate $163 billion in revenue this year, up significantly from $92 billion last year.
Micron also appears positioned to offer impressive guidance. This is because the size of the memory market is expected to increase to $204 billion by 2025. HBM will of course play a central role in the growth of this market. Micron predicts this specific type of chip will generate $25 billion in revenue next year, up from $4 billion in 2023.
At the same time, new catalysts, such as the incoming PC refresh cycle and the growth of the smartphone market, could give Micron an additional boost. IDC estimates that the global PC market could show 4.3% growth in 2025, after a flat performance this year. Meanwhile, global smartphone sales are expected to grow in the low single digits next year.
The combination of these factors should ensure that the memory market remains in good health in 2025. That should be enough to help Micron maintain the impressive growth momentum it has gained in recent quarters.
Analysts expect Micron’s revenue to rise 84% year over year to $8.71 billion in the first quarter of fiscal 2025. It is expected to post a profit of $1.77 per share, compared with a loss of $0.95 per share in the same quarter last year. Those numbers are within Micron’s guidance range. We’ve already seen that stronger demand from companies like Nvidia could help Micron beat consensus expectations, and that could send the stock soaring after its quarterly report.
At the same time, Micron is expected to post excellent revenue growth of 52% in fiscal 2025 to $38 billion, while earnings are estimated to soar to $8.78 per share from $1.30 per share. action in the previous fiscal year.
Finally, Micron’s incredibly cheap valuation means investors are getting an incredible deal on the stock right now. The chipmaker trades at just 12 times forward earnings, and Yahoo! Finance notes that its price/earnings-growth ratio (PEG ratio), based on its estimated five-year earnings growth rate, is just 0.17.
A PEG ratio less than 1 means a stock is undervalued relative to the growth it is expected to generate. This makes Micron a high growth stock that investors can consider buying as it looks set to rise this month and next year as well.
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Hard Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Nvidia. The Motley Fool has a disclosure policy.
