Micron’s Fiscal Q4 Earnings Will Likely Impress, But the Stock May Not Follow

Key Points

• Micron is a major beneficiary of the current memory supercycle, and it is poised to deliver exceptional fiscal Q4 earnings.

• Lagging behind in HBM production has paradoxically insulated Micron, though this dynamic may shift in the future.

Similar to the popular adage among improv actors to always say “Yes and…,” the hit series Ted Lasso adopted AFC Richmond’s “Believe” motto and added “and” for its new women’s team, acknowledging that belief alone does not guarantee success. In the same vein, while Micron Technology (NASDAQ: MU) is poised to deliver exceptional fiscal Q4 earnings after the market close on Wednesday, Sept. 30, “and” this performance is impressive, it may ultimately be irrelevant for the stock’s trajectory. Investors anticipating a stock surge based on a strong earnings report and near-term guidance should temper their expectations.

Image source: The Motley Fool

A memory supercycle

Micron stands as one of the three major memory manufacturers, alongside Korean competitors SK Hynix (NASDAQ: SKHY) and Samsung (OTC: SSNLF). In the previous quarter, roughly three-quarters of its revenue was derived from DRAM (dynamic random access memory), with the remaining quarter from NAND (flash).

Currently, a significant supply-demand imbalance characterizes the memory market, driving consistent price increases for both DRAM and NAND. On the demand side, there is an immense requirement for high-bandwidth memory (HBM), a specialized high-end DRAM packaged with graphics processing units (GPUs) and other AI chips to minimize latency and optimize performance. Demand is so insatiable that major AI chip companies have aggressively signed extensive, multi-year supply agreements with the top three memory makers to secure future HBM availability.

On the NAND front, demand is also expanding due to AI. Unlike volatile DRAM, which erases when power is lost, flash memory serves long-term storage. Training AI models requires storing vast amounts of data, often utilizing massive solid-state drives (SSDs) powered by NAND. Consequently, as AI models grow, the requirement for flash memory is surging.

Meanwhile, supply remains constrained despite soaring demand. For DRAM, constraints arise because HBM competes for the same extreme ultraviolet (EUV) lithography machines used to produce essential components for advanced logic chips, such as GPUs and CPUs. ASML is the sole global manufacturer of these machines, creating a foundational bottleneck. Furthermore, HBM requires up to three times the wafer capacity of conventional DRAM, and constructing new cleanrooms takes years. For NAND, constraints result from the top three memory companies reallocating cleanroom space and prioritizing higher-margin HBM production.

Expect to see massive growth in fiscal Q4

The current market dynamics have proven highly lucrative for Micron. The company ranks as the third-largest manufacturer of DRAM and NAND, holding a 24% and 15% market share, respectively, in Q2, according to Counterpoint Research. However, among the big three memory makers, Micron derives the least revenue from HBM, with an 18% share compared to 50% for SK Hynix and 33% for Samsung.

Ironically, this HBM deficit has made Micron one of the cycle’s biggest beneficiaries, as HBM pulling supply away from standard DRAM has caused conventional DRAM prices to surge beyond already elevated HBM prices. Both DRAM and NAND prices have steadily climbed throughout the year, reaching record highs in August—a strong indication that Micron will post another outstanding quarter for its fiscal Q4 ended Aug. 31.

Nevertheless, this likely will not move the stock. Investors are already aware of Micron’s strong positioning for another robust quarter, while growing cautious about when the memory supercycle might conclude. Given its HBM lag, Micron is more vulnerable to a pullback in ordinary DRAM and NAND prices.

The memory market has historically been highly cyclical, and investors will seek management commentary on the cycle’s duration, though such guidance is often met with skepticism. This was evident after NAND maker Sandisk’s analyst day, when Wedbush analyst Matt Bryson expressed doubt regarding some of the company’s assumptions.

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