Behind the unexpected growth and stock price decline: Micron Technology 24Q3 earnings analysis

According to Bloomberg estimates, third-quarter revenue of about $6.688 billion, earnings per share of $0.50, net income of $544 million. Thus, Micron's performance was strong, with revenue, net profit and earnings per share, all beating market expectations. The better than expected performance in the third quarter was mainly driven for several reasons:

1. Rapid market demand growth: The improvement in industry supply and demand conditions, especially the rapid growth in the demand for AI in data centers, has driven the sales of Micron products. The successful launch and sale of the HBM3E product has resulted in significant revenue growth for the company. Strong demand for enterprise-class solid-state drives, particularly demand pull from AI workloads, has increased the company's market share in this segment.

2. Strong price growth: Tight market supply and demand led to price increases for DRAM and NAND products, which improved the company's revenue and profit margin.

3. Strengthen portfolio profitability: As Micron's product iterations have been updated, high-margin AI-related product categories (such as HBM3E, high-capacity DIMMs, and data center SSDS, etc.) have increased their share in the portfolio, optimizing their product margins.

4. Technological progress: The company accelerated the development of the industry's most advanced DRAM and NAND technology node, according to company data, its HBE3E chip consumes 30% less power than the alternative, improving product competitiveness and pricing power.

5. Cost control: Despite challenges such as the Taiwan earthquake, Micron achieved significant reductions in DRAM and NAND costs through effective cost control measures.

6. Government Funding support: In a memorandum signed with the U.S. government related to the Chip and Science Act agreement, Micron will receive a $6.1 billion grant and a $7.5 billion loan program to support the expansion of its production facilities in New York and Idaho, which will provide financial support for the company's memory manufacturing expansion.

7. Signing long-term contracts: Long-term contracts with customers help stabilize future revenue and earnings expectations.

8. Supply chain recovery: The company quickly resumed operations following the Taiwan earthquake, mitigating the potential impact on results.

9. Capital expenditure management: The company's strict control and effective management of capital expenditure ensures the return on investment and the balance between supply and demand.

However, due to its high correlation with the business of semiconductor technology companies such as Nvidia, the market's expectations for Micron are very high in the context of Nvidia's recent bright performance and the growth of AI-driven memory demand. Although the results beat expectations, its shares fell 7.6% in after-hours trading on Wednesday as its conservative guidance for fourth-quarter revenue didn't match the market's overly optimistic outlook. There are several reasons for the decline in stock prices:

1. Next quarter earning guidance failed to beat market expectations by a large margin: Wall Street had very high earnings expectations for Micron Technology and its pre-earnings valuation was too high. But Micron's guidance for the next quarter was only in line with market expectations, and did not beat them by a wide margin, which could lead to disappointment about the company's growth potential in the short term, which could affect the stock price.

2. Traditional market demand for AI chips is not expected to be met: Despite the continuous growth of data center revenue driven by AI demand, the smartphone and personal computer markets are still sluggish, and there will be no clear increase in demand for AI chips in the short term. Market expectations were too optimistic, leading to a decline in investor confidence after the earnings announcement and a decline in stock prices.

3. Stock price has reacted in advance: before the earnings release, Micron Technology's stock price has risen, the valuation is high, and the stock price has partly reflected the market's expectations of the company's performance, so after the earnings release, the stock price has fallen.

4. Supply chain and capacity issues: While Micron's growth in AI is strong, the market may be concerned about its supply chain and capacity issues in the smartphone and PC markets, which may limit the company's ability to take full advantage of market opportunities.

To sum up, although Micron Technology's performance in the third quarter exceeded expectations, due to high market expectations for the future, concerns about guidance for the next quarter, weak demand for traditional markets, the stock price has responded in advance, the demand for AI chips has not been met, and supply chain and capacity issues and other factors, resulting in a decline in its share price after the announcement of financial results.

Fourth-quarter revenue was $7.6 billion, plus or minus $200 million, according to the company's forecast. The gross profit margin is within the range of 34.5%, up or down 100 basis points; Based on the number of shares of about 1.1 billion, earnings per share are expected to be $1.08, plus or minus $0.08.

Bloomberg estimates fourth-quarter revenue of $7.585 billion, earnings per share of about $1.02, gross margin of 34.48%. This shows that the company is cautiously optimistic about its next quarter results.