Micron's stock could see its best day in 13 years. What's behind the big move.

By Emily Bary

Micron's stock momentum after earnings reflects relief over the guidance as well as an appreciation for the company's ability to benefit from AI trends

Micron Technology Inc. was an artificial-intelligence darling earlier this year, before shares came off 38% from their June highs, partly reflecting concerns about softer non-AI portions of the company's business.

But Micron's (MU) latest earnings report again showed Wall Street that the company is seeing demonstrable financial benefits from the AI craze, as data-center demand was enough to outweigh weakness in markets like personal computers and mobile devices that still face elevated inventories.

The result? Micron shares are up 16.7% in premarket trading Thursday following better-than-expected November-quarter guidance. There had been fear Micron would miss expectations with its guidance, so the fact that the company actually came in above estimates is giving Wall Street more confidence.

See more: Micron surprises investors with strong guidance, sending stock soaring

Were the premarket move to hold through Thursday's close, Micron's stock would record its biggest daily percentage rise since Nov. 16, 2011, when it climbed 23.4%.

Micron's "solid beat and raise" was "driven by pricing and strong data-center demand," according to Needham analyst N. Quinn Bolton. He noted that bit shipments of dynamic random-access memory, or DRAM, are now likely to be higher during the current quarter than management previously suggested.

"This is largely due to strength in data center, as AI server demand remains robust and traditional servers continue to recover," he continued. At the same time, "end markets such as PC, smartphone and automotive remain muted," though Micron expects the PC and mobile trends to get better by the spring.

He rates the stock a buy with a $140 target price.

Krish Sankar of TD Cowen took a similar view.

"Despite continued inventory builds at PC/smartphone customers and end-demand softness, the expected mid-cycle in memory spanning between now and [the calendar second quarter] seems to be shallower than feared as the strength from data-center customers continues," he wrote.

He added that "supply and demand remain well in-tune especially as [high-bandwidth memory] continues to consume [wafer-fabrication-equipment] budgets," or those of semiconductor-equipment companies.

Sankar rates the stock at buy with a new target of $135, up from $115 before.

See also: Nvidia investors just got a $1 trillion reason to be even more bullish

Mizuho desk-based analyst Jordan Klein wrote that Micron was shifting focus toward high-bandwidth memory and away from areas like personal computers and smartphones. High-bandwidth memory is finding use cases in AI, and it comes with higher gross margins, he said.

"More and more output will be custom designed with set pricing," Klein noted.

Wedbush's Matt Bryson was intrigued by the company's projection for $25 billion in high-bandwidth-memory demand next year, compared with $5 billion this year.

"Assuming Micron's gauge of real end demand is accurate, we see limited likelihood of industry oversupply," he wrote. "And with the vast majority of spending/capacity growth aimed at supporting perceived HBM requirements, if HBM supply/demand is healthy, in our view it's exceedingly unlikely the industry enters a period of cyclical oversupply."

Bryson has an outperform rating and $140 target price on Micron shares.

-Emily Bary

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09-26-24 0901ET

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