Micron Technology (NASDAQ:MU) is set to release its quarterly earnings results for Q4 today, and investors will be closely watching for signs of a rebound in demand for memory chips. Such a rebound could help boost sentiment in the technology sector, which has been impacted by rising bond yields. Micron’s stock has performed relatively well this month, down only -2.9% compared to the -6% decline in the Nasdaq 100 (QQQ). This performance is partly due to expectations that the memory semiconductor market is showing signs of recovery.
Semiconductor manufacturers, including Micron, have faced challenges this year with a slowdown in demand for memory chips, particularly in the smartphone and personal computer markets. However, there are indications that the excess inventory of memory chips is starting to decrease. This reduction in inventory could help balance supply and demand and allow chip makers to meet increased orders for high-performance products needed for artificial intelligence (AI) systems.
Many analysts are optimistic about Micron’s prospects, believing that the company has navigated the challenges of excess inventory and is well-positioned to benefit from growing demand for its AI-related products. Micron’s stock has risen by +36% this year, and analysts expect the company’s revenue to expand in the first quarter after a significant drop in sales in the previous fiscal year. The majority of analysts covering the stock have buy recommendations, with only a few suggesting to sell.
One key growth area for Micron is its production of high-bandwidth memory (HBM) chips, which are essential for AI software training. As AI applications continue to grow, there is a concern that the demand for HBM chips may outstrip supply in 2024. This could lead to better pricing and margins for Micron.
However, not all analysts share the same level of optimism. Some, like Morgan Stanley, believe that any improvements in memory chip pricing have come from production slowdowns driven by excess inventory, rather than a true rebound in demand. They anticipate that Micron’s losses may persist into 2024, cautioning that the stock may be pricing in strong conditions that have yet to materialize.
In conclusion, Micron’s earnings report will be closely watched for clues about the state of the memory chip market and the company’s prospects in the AI sector. While optimism exists, there are also concerns about the sustainability of any pricing improvements in the memory chip market. Investors should carefully consider both sides of the argument when evaluating Micron’s performance.
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