Micron shares decline, but AI growth points to a bullish future – Magic Post

Investors interested in Micron technology Nasdaq: Mo It should cheer the fact that its shares fell after its first-quarter 2025 earnings report. The move is seen as a knee-jerk reaction to mixed results and guidance that point to near-term weakness and long-term strength, driven by its shift to artificial intelligence.

Micron technology today

in

Micron technology

$86.72 -17.18 (-16.54%)

(As of 01:10 PM ET)

52 week range

$78.63

▼

$157.54

Dividend yield

0.53%

P/E ratio

127.53

Price target

$133.56

Legacy business remains a problem for Micron. The global semiconductor inventory reset is taking longer than expected due to end markets, including personal computers. However, they are offset by the power of next-generation technologies: Micron’s advanced data center and AI products, including the industry-leading HBM3E memory chips. HBM memory is critical to AI due to the capacity and speed at which it operates. Micron’s HBM3E is the most advanced in the industry, delivering significantly better performance with lower power usage, and is ideal for data centers and AI consumption.

Micron provides mixed results and weak guidance. Expects 35% growth

Micron delivered mixed results and gave weak guidance for the second quarter, but let’s be fair. The company achieved 84% year-over-year (YoY) revenue growth and a wider margin on record results, outperforming the bottom line and guiding for another 35% year-over-year growth in the second quarter. Growth is slowing sequentially and on an annual basis, but the 35% rate, in addition to last year’s gains of 50%, is considered strong, and expectations were high. Analysts have raised their forecasts throughout the year as demand for artificial intelligence and data center businesses led to increased strength in peripheral markets such as memory. Given the trends, Micron’s guidance is likely to be cautious.

Segmentally, DRAM sales increased 20% sequentially and 86% year over year due to demand for HBM3 and supporting technology. HBM sales more than doubled, and SSD sales were also strong. The company cites market share gains in the SSD segment and expects additional gains in the coming quarters.

Margin news is strong. The company produced an adjusted operating margin of 27.5%, 50 basis points better than the reported MarketBeat consensus, up 500 basis points sequentially, reversing the loss recorded in the prior year. The revised $1.79 price is up significantly from last year’s loss of $0.95 and about 200 basis points above expectations. The result is that Micron’s business is maintaining earnings and improving profitability, with strengths expected to continue this year, delivering positive free cash flow.

Micron invests in next generation technology and growth

Micron’s balance sheet shows some changes, including cash reduction since the beginning of the year. However, red flags are offset by increased spending on HBM technologies and increased production to meet demand. The result is less cash, but the company is still well capitalized and working to build value for investors. Balance sheet highlights include increased receivables, current assets and total assets only partially offset by increased liabilities. Assets increased by $2.05 billion, or about 3%, while liabilities increased by less than $0.5 billion, or about 1.5%, resulting in shareholders’ equity rising by 3.7%. Leverage remains low, with total liabilities around 0.5 times equity, leaving the company in a strong financial position able to execute on its plans while paying its dividend.

Analysts are stunned by Micron’s strong quarter

Analyst response to Micron’s results was mixed. The bulk of the activity is negative, including several target rate cuts and a credit rating downgrade from Bank of America. However, the chatter is optimistic, citing near-term headwinds and the expectation of improved strength in the back half of next year when legacy businesses return to growth. Not all reviews are negative. Rosenblatt maintained a Buy rating and price target of $250, anticipating a 150% stock price increase. The consensus sentiment on Micron is moderate buy, and most analysts see it trading above $110.

The stock price is down 12% in early pre-market trading but there may not be a much deeper move. The stock is trading at a deep value level and above critical support at the long-term moving average. There is a risk that Micron could fall below the $85 level, but this is not expected due to the low 11x earnings multiple, the strength of results, and the long-term outlook for industry-leading results driven by HBM3 demand. The most likely scenario is that this market will quickly regain momentum, confirming critical support levels as it rebounds from the post-release lows.

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