Micron braces for profit boost with high-margin products and AI-driven market expansion, analyst says

Cantor Fitzgerald reiterated analyst CJ Muse Micron Technology Inc (NASDAQ:MU) with an Overweight rating and a $150 price target.

The $150 target price reflects approximately 14 times Muse’s calendar year 2025 EPS estimate, up from 13 times previously.

Muse highlighted key takeaways from Micron’s investor call.

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

The company noted that the significant performance for the November quarter guidance was driven entirely by data center strength, both Cloud and Enterprise.

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

Muse noted that the assumptions for both PCs and smartphones look very conservative, with a recovery expected only in the May quarter and beyond. Overall, the guide seems conservative in its expectations.

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

Beyond HBM, these include products such as high-capacity server DRAM DIMMs, LPDDR5 and eSSD, which the company expects to generate multibillion-dollar revenues in fiscal 2025 and likely enable a level of higher profitability given the higher structural gross value. the margin nature of these products.

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

The analyst said Micron’s top 12 is likely to grow with volume shipments in early calendar year 2025, with significant revenue coming in the latter half of 2025. He added that Micron expects gross margins for products its Big 12 will likely be an additional tailwind in 2025.

Muse found solace in reiterating that the huge capex spent in fiscal 2025 won’t translate into new bit production until 2026 at the earliest. Oversupply continues to be a concern for investors.

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

The story continues

As pointed out in Muse’s recent note, it seems certain that the DOC or BIS will embargo HBM sales from Micron, Samsung and Hynix in mainland China.

While Micron has no exposure to HBM’s China sales, the concern is how Samsung will repurpose China-dedicated wafer capacity elsewhere globally.

However, his view is that the HBM embargo will likely coincide with the addition of ChangXin Memory Technologies and Swaysure to the entity list, thus likely adding to incremental demand for DRAM bits in China.

Muse projects Q1 revenue of $8.70 billion and EPS of $1.74.

Price action: Shares of MU were down 3.49% at $100.09 as of last check on Tuesday.

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Photo: courtesy of Micron

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