Updated at 9:44 AM EDT
Micron Technology shares moved lower in early Thursday trading following a rare 'double downgrade' for the A memory chip maker as it continues to suffer its long summer slump.
Micron ( MU ) , which has underperformed its chipmaking rivals as well as the broader tech sector this year, is looking to capitalize on the AI investment surge through its high bandwidth memory chips.
The group posted solid third-fiscal-quarter earnings in June and said current-quarter sales would rise 90% from last year to around $7.6 billion, tied to demand for its new HBM3E chips, which are now being built into Nvidia's ( NVDA ) H200 processors and its newly developed Blackwell systems.
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Micron also told investors that it expects to generate "multiple billions of dollars in revenue from HBM in fiscal 2025," which ends in August, adding that its share of the newly emerging market would be "commensurate with our overall DRAM market share" sometime next year.
The stock, however, has fallen more than 40% since that late-June update, thanks in part to concern about the high valuations for AI-related chip stocks and the huge amounts of capital spending required to meet production and demand forecasts.
Micron sees sharp rise in capital spending
Capital spending will need to increase significantly, however, to enable that kind of production ramp. And Micron, which forecasts around $8 billion in capital expenditure for the current fiscal year, sees that figure rising to around the "mid-30%s range of revenue for fiscal 2025."
At current forecasts, that would translate to capex of $13.5 billion, a near 70% increase from fiscal 2024 levels.
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Exane BNP Paribas analyst Karl Ackerman, who issued a rare 'double downgrade' for Micron stock, taking his rating to 'underperform' expects the group's lackluster performance to continue.
"While some investors are aware of the downside risk to near-term results, we believe Micron will underperform its artificial intelligence peers through 2025 due to an oversupply of high bandwidth memory, leading to a faster-than-expected correction in conventional DRAM selling prices," Ackerman said.
"Our earnings estimates for 2025 and 2026 are 34% and 45% below consensus, respectively," he added.
Ackerman also slashed his Micron stock price target by $73, taking it to $67 a share.
Raymond James: Micron DRAM cycle 'has legs'
Raymond James analyst Srini Pajjuri, meanwhile, also lowered his Micron price target in a note published Thursday, cutting it to $125 from $160 while keeping his 'outperform' rating in place.
The analyst was more optimistic about the group's near-term performance, arguing that weakness has been priced in to the stock and the new DRAM cycle "has legs."
Other analysts have argued that Micron will be able to generate better pricing power for its legacy DRAM memory chips, thanks to its HBM developments and market-share gains.
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Micron's DDR5 random access memory, released in 2020, also provides more performance with less power than its predecessors, while solid-state drives are used in flash-memory storage on laptops and desktop computers.
"We are in the early innings of a multi-ear race to enable artificial general intelligence, or AGI, which will revolutionize all aspects of life," CEO Sanjay Mehrotra told investors in June.
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"AI will also permeate to the edge via AI PCs and AI smartphones, as well as smart automobiles and intelligent industrial systems," he added.
"These trends will drive significant growth in the demand for DRAM and NAND, and we believe that Micron will be one of the biggest beneficiaries in the semiconductor industry of the multi-year growth opportunity driven by AI."
Micron shares were marked 4.9% lower in early Thursday trading to change hands at $85.94 each, a move that trims the stock's 2024 gain to just 4.5%.
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