Micron Set for Profit Surge with High-Margin Products and AI-Driven Market Expansion, Analyst Says

Cantor Fitzgerald analyst C J Muse reiterated Micron Technology Inc MU with an Overweight rating and a $150 price target.

The price target of $150 reflects ~14 times Muse’s calendar year 2025 EPS estimate versus the prior 13 times.

Muse highlighted key takeaways from its investor call with Micron.

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The discussion mainly focused on the overall health of the DRAM or HBM market and Micron’s increasingly differentiated product portfolio.

The company noted that the meaningful outperformance for the November quarter guide was driven entirely by strength within the Data Center, from both the Cloud and Enterprise.

Overall, the company expects server growth in the mid-single-digit %, driven by both AI and traditional, non-AI servers.

Muse noted that assumptions for both PCs and Smartphones appear very conservative, with a recovery only expected into the May quarter and beyond. Overall, the guide seems conservative as per his expectations.

While HBM has been investors’ primary focus, Muse noted that the overall shift to higher-value and higher-margin solutions is an underappreciated part of Micron’s story.

Beyond HBM, this includes products such as high-capacity server DRAM DIMMs, LPDDR5, and eSSD, which the company expects to each achieve multi-billion dollars in revenue in fiscal 2025, and likely allowing for a higher profitability floor given the structurally higher gross margin nature of these products.

Muse writes that the company discussed additional details on its HBM3E 12-high products, which continue to exhibit technological leadership, including significantly better power efficiency compared to competitors. The company also highlighted a recent publication on its 12-high products.

The analyst said Micron’s 12-high will likely ramp with volume shipments in the early calendar year 2025, with meaningful revenue to come in the back half of 2025. He added that Micron expects the gross margins for its 12-high products will likely be an additional tailwind in 2025.

Muse found comfort in the reiteration that the outsized Capex spent in fiscal 2025 will not translate into new bit output until 2026 the earliest. Bit oversupply continues to be an investor concern.

However, Micron reiterated that most spending is geared towards shell or clean-room space, with initial bits out of Idaho coming in 2026 and New York in 2027+, the analyst said. Add a bit of loss to the HBM transition, and he views DRAM as an undersupply for all of 2025.

As highlighted in Muse’s recent note, it appears certain that the DOC or BIS will embargo sales of HBM from Micron, Samsung, and Hynix into mainland China.

While Micron has zero exposure to China HBM sales, the worry is how Samsung will repurpose the wafer capacity dedicated to China elsewhere globally.

His sense, though, is the HBM embargo will likely coincide with adding ChangXin Memory Technologies and Swaysure to the entity list, thereby likely adding incremental demand for DRAM bits from China.

Muse projects first-quarter revenue of $8.70 billion and EPS of $1.74.

Price Action: MU stock is down 3.49% at $100.09 at the last check on Tuesday.

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Photo: courtesy of Micron