Micron Technology: Ambivalent Prospects Despite AI Success

Micron Technology's stock experienced a decline of about 12% in pre-market trading on Thursday. The reason for this is a gloomy forecast anticipating subdued demand for PCs and smartphones, despite a strong increase in chip sales for artificial intelligence (AI). The market for DRAM chips, used in PCs and smartphones, has been under pressure since the end of the pandemic. A persistent oversupply and hesitant consumer demand are additionally burdening the business. For the fiscal year 2025, Micron's revenue from flash memory chips is expected to be significantly weaker. These chips are heavily dependent on PC and mobile phone sales figures, according to Morningstar analyst William Kerwin. Growth in traditional PCs post-pandemic did not meet expectations, while AI-enabled computers have yet to gain wide acceptance. Compounding the industry's challenges is the slower-than-anticipated transition to Windows 11 following Microsoft's announcement to end support for Windows 10. If the pre-market losses continue, Micron's market value could drop by more than $14 billion to around $102 billion. Conversely, revenue from Micron's high-bandwidth memory chips, a type of DRAM for advanced AI systems, more than doubled sequentially. Analysts at Piper Sandler emphasize that Micron is well-positioned to benefit from market expansions due to data center investments starting in 2025. The Idaho-based company, along with South Korean firms SK Hynix and Samsung, is one of only three providers of these HBM chips. The demand for HBM chips has driven Micron's stock price up by about 22% this year so far. Experts expect this trend to remain a decisive driver. Nonetheless, at least ten brokers have lowered their price targets for the stock, according to LSEG data. Micron's 12-month forward price-to-earnings ratio is 10.67, lower than Qualcomm’s at 13.4 and AMD’s at 23.97.