Surprisingly, Micron technology (MU 5.62%) The shares showed disappointing stock market performance in 2024. They posted a gain of just 20%, despite posting solid results in recent quarters that indicate excellent growth in the company’s sales and profits.
The memory specialist’s shares have fallen 27% since hitting a 52-week high in mid-June. However, it won’t be a surprise to see the share price change after Micron reports its first-quarter fiscal 2025 results on December 18.
Let’s look at why that might be the case.
Micron Technology’s upcoming results could exceed expectations
Micron Technology is known for producing memory chips for both computers and storage. This market is historically cyclical in nature, depending on the demand for personal computers (PCs) and smartphones. This explains why the global memory market fell nearly 39% last year, according to Gartner estimates, due to a 4.4% decline in shipments of PCs, smartphones and tablets.
The decline in device shipments was more pronounced in 2022, with a decline of 11.9%. Not surprisingly, Micron’s financial performance suffered in 2022 and 2023.
MU Earnings Data (TTM) according to YCharts.
However, the memory industry is in a turnaround mode this year. It is driven by catalysts such as artificial intelligence (AI) that are driving a jump in memory usage 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 pace, such as Nvidia have integrated this type of memory to make their AI accelerators more powerful.
Nvidia’s latest Blackwell B200 GPU features 192 gigabytes (GB) of HBM, which is a big improvement over the previous generation H100’s 96 GB and the H200’s 144 GB. This factor could help Micron achieve better-than-expected results. That’s because when Nvidia announced its latest quarterly results last month, management pointed out that production at Blackwell is ramping up faster than expected.
Nvidia notes that it is on track to “exceed our previous Blackwell revenue estimate of several billion dollars as our visibility into the offering continues to increase.” This is good news for Micron, as the chipmaker has already supplied its HBM chips to Nvidia. Stronger demand for Blackwell could see 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 provide impressive guidance. That’s because the size of the memory market is expected to rise to $204 billion by 2025. HBM will obviously play a central role in the growth of this market. Micron expects this particular type of chip to generate $25 billion in revenue next year, up from $4 billion in 2023.
At the same time, new catalysts such as the upcoming PC refresh cycle and growth in the smartphone market could give Micron additional momentum. IDC estimates that the global PC market could see growth of 4.3% in 2025, after a flat performance this year. Meanwhile, global smartphone sales are expected to grow by 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.
Great growth and attractive valuation make buying the stock a no-brainer
Analysts expect Micron’s revenue to rise 84% year over year to $8.71 billion in the first quarter of fiscal 2025. The company 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. These figures are well within Micron’s target range. We’ve already seen that stronger demand from the likes of Nvidia could help Micron beat consensus expectations, and that could send the stock higher after its quarterly report.
At the same time, Micron is expected to report an excellent 52% revenue growth in fiscal 2025 to $38 billion, while earnings are expected to rise to $8.78 per share, compared to $1.30 per share 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 twelve times forward earnings, and Yahoo! Finance points out that the price/earnings growth ratio (PEG ratio), based on five-year estimated earnings growth, is just 0.17.
A PEG ratio of less than 1 means a stock is undervalued relative to the growth it is expected to deliver. This makes Micron a top growth stock that investors can consider buying as it looks to move higher this month and next year.
