MU Earnings Continue Bullish AI Memory Demand, Analysts Back Bull Case

SPEAKER_1 (0:00)

We're back online Trade Live. Let's focus on the chart for Micron, given we just had earnings yesterday, smashed it. We are down though, 2.5% right now. Obviously, we've seen this triple digit rally year today. We hit the peak in November, June, I should say. We have very much been trading somewhat sideways into this print. There's been a lot of debate around the AI trade in the last couple of months, as we've seen that rotation back into the Mag-7. But let's talk about this quarterly result and today's reaction, because that is the focus of the Morning Trade. Joining us for a closer look is Marley, as always. Good morning, Marley, as you and I were breaking down these numbers. I mean, it was a very interesting reaction. You just wondered exactly, if anything, what the minor blemish was, why the markets weren't trading higher at that point. But now we've had time to digest it. We've had the call. We've had the analyst reaction. What are you seeing?

Marley Kayden (0:53)

Sam, it's a lot of what we were looking at yesterday. A couple of mentions of margins and just a hair of compression there. Concerns about CapEx, not any major flags, but just little things being very nitpicky when it comes to this report. So we continue to see.

Now we've taken a decisive move to the downside, but not nearly as significant as what the options market was pricing in, which was a little bit north of 7 percent. But let's walk through the numbers here. I mean, they beat on earnings. They issued strong guidance. Saw their data center revenue jump 11 fold as they continue to benefit from increased demand for AI infrastructure. Their earnings per share came in at $33.42 versus the $31.61 that was expected. Revenue was almost quadrupled from the fourth quarter of the previous year. It came in at $54.23 billion. The street was looking for about $51 billion, so considerably better than expected.

As far as what we're looking at in terms of guidance, they expect revenue of about $61.5 billion, so more increase there. Earnings per share will jump to $38.15, that's the expectation. Both of those metrics also beat analyst expectations. Their stock is up 500% this year. A lot of that driven by these memory prices and the memory shortages. Their DRAM revenue in the quarter alone increased more than 340% from a year ago up to 39.8%.

That's about 73% of total sales overall. The CEO also commented that the company is working with NVIDIA on the industry's quote, first custom HBM implementation. So another potential exciting driver there.

And as we look at the investment, that CapEx was another concern here, as they said they do plan to spend more. They're investing $250 billion to build two new campuses for making HBM. They broke ground in New York in January on one. They also have a new fab in Boise, Idaho, that's scheduled to come online next year. And as far as their projections, at least for the fiscal first quarter, they're expecting $11.5 billion in terms of CapEx spend. The first half of fiscal 27th looking to be about $25 billion, but they said that the spending for the second half is expected to be even higher than the first. So I think perhaps maybe some concerns there, analysts Golden keeping a neutral rating, they're keeping an $1100 price target right now, we're about 1040 They say that they expect the stock to move modestly higher following a quarter in guidance that were well above estimates, despite a short fall on gross margin guidance that was set against elevated investor expectations. So again, there's that mention of guidance.

They also say investors expected to focus on potential updates to the CapEx outlook. We've got JP Morgan coming out, reiterating their overweight rating. They have a $1,540 price target, saying the company delivered a decisive beat and raised quarter. They like their upgraded view on supply and demand tightness. They say they confirmed a near certain capital return pivot. They say they have a strong multiple year earnings power narrative going from here. Morgan Stanley says that over the last three quarters, they had beaten guided ahead of the consensus on EPS by 20 to 40 percent. Last night, they only beat by 5 percent and guided by 6 percent above the consensus, which may be the new normal for Micron's visibility going forward. They keep an overweight rating and a $1,200 price target. Gabelli Funds put out a note this morning saying it was another strong beaten raise, but said, at this point, I have not heard any negative data points pointing to a memory cycle reversing toward a decline anytime soon for the foreseeable future. So a lot of questions about visibility, about the durability of this memory demand cycle, which overwhelmingly seems to be holding up if you're looking at the analyst notes, Sam.