Micron topped lofty earnings expectations. Wall Street sees even more momentum as chipmaker announces a slew of deals
Micron delivered a strong earnings beat on Wednesday in addition to unveiling a slew of new deals that have analysts even more excited about the stock’s future. The company’s fiscal third-quarter earnings and revenue both topped consensus estimates. On top of that, Micron issued revenue guidance for the current quarter that was ahead of estimates. Micron executives also revealed that the company had signed 16 deals with data center operators, automakers and other clients for sales that are scheduled to occur over the next three to five years. Those long-term agreements are expected to bring in $22 billion, according to the company. Micron stock rose roughly 18% in premarket trading on Thursday. “MU delivered another strong quarter, reinforcing our constructive view on memory’s role in AI and the increasing supply-side discipline supporting a more durable cycle,” Bank of America analyst Vivek Arya said Wednesday in a note to clients. “While strategic customer agreements (SCAs)—now 16, up from last quarter—may modestly cap near-term pricing upside, they materially enhance visibility and reduce volatility by aligning with customers facing a rising ‘memory tax.'” Arya has a buy rating on Micron. He also raised his price target on shares to $1,550 from $1,500, suggesting 48% upside from Wednesday’s close. Shares of Micron have surged 724% over the past year, largely due to rising memory chip prices tied to the artificial intelligence boom. Micron, which produces advanced memory and data storage semiconductors, has attracted considerable business amid a memory supply crunch linked to widening AI adoption. MU 1Y mountain Shares are up more than 700% over the past 12 months. Several strategists across Wall Street raised their price targets on the stock. Here’s what they had to say. Citi: Buy, $1,400 Micron could see upside of 34%, per analyst Atif Malik’s price target on the stock. His previous target was $1,200. “We are buyers of Micron after the company signed Strategic Customer Agreements worth ~40% of sales to be covered over the next five years. Micron talked about a transformed business model driven by memory shortages through 2028 with improved visibility and durability. The take or pay contracts with annual volume commitments, upfront cash deposits, price band ceiling using C2Q pricing, and floor price negotiated every quarter to deliver gross margins above prior peak margins creates more trust in the [dynamic random access memory (DRAM)] industry vs the historical cyclers, in our view. Moreover, Micron plans to return 100% excess cash to shareholders up from prior 50%.” Goldman Sachs: Neutral, $1,100 The price target set by analyst James Schneider for Micron is 5% above the price at which shares closed on Wednesday. “We expect the stock to trade higher following a very strong quarter with guidance that was well ahead of the Street, set against elevated investor expectations heading into the quarter. Importantly, Micron disclosed additional details regarding its strategic customer agreements – which we see as a significant positive. The company has signed 16 agreements across a range of end markets, most of which contain both floor and ceiling prices. The company currently has signed agreements representing about 20% of its anticipated DRAM volume…and expects to cover ~50% of its expected revenue over time. We believe these agreements are a significant positive for the stock which could help increase the multiple on ‘peak’ earnings investors are willing to pay for the stock.” Wells Fargo: Overweight, $1,525 Analyst Aaron Rakers’ target is 45% above the price at which Micron closed Wednesday. “MU now has 16 signed SCAs (4 large customers; 3 medium-sized; remaining smaller across auto) – significant reaffirmation of our long-standing thesis that the strategic value of memory is further expanding via AI proliferation.” Morgan Stanley: Overweight, $1,200 The price target from analyst Joseph Moore implies 14% upside from Wednesday’s close. The bank previously had a price target of $1,050. “Our view is consistent with [management], that AI will keep DRAM demand well above supply beyond 2027. Micron’s quarter was consistent with that, with material upside to [quarter] & guidance. Significant [long-term agreement] disclosure could be a little mixed, with deposits vs prepayments.” JPMorgan: Overweight, $1,540 Harlan Sur’s price target, up from $1,220, is 47% above its Wednesday closing price. “Results and guidance were far ahead of pre-call Street and buy side expectations, but to us the even more meaningful development was MU’s substantial expansion of its Strategic Customer Agreements (SCAs) from a single 5-year contract (announced last [quarter]) to 16 signed agreements, a step-change that in our view fundamentally transforms MU’s business model from cyclical commodity producer to multi-year contracted supplier with significant downside protection on both revenue and margins.” Barclays: Overweight, $2,000 Barclays analyst Tom O’Malley sees 91% upside for Micron from its Wednesday closing price. His previous target was $1,175. “Coming into the quarter our view was that the company needed to give details around the SCAs in order to give customers comfortability on the print. The given details are better than we would have expected with both revenue commitments and number of customers. The SCAs are take-or-pay agreements across 16 customers spanning Data Center, Consumer, and Auto markets with four large customers and three medium-sized customers. The smaller agreements generally are for Automotive customers…All-in, we think these deals are a material positive to protect the downside and we still see levers to move MU higher with the supply/demand imbalance nowhere near abating.” Deutsche Bank: Buy, $1,550 Analyst Melissa Weathers put a price target on the stock that is 48% above its closing price on Wednesday. Her previous forecast was $1,500. “Micron results cleared a high bar, both financially and strategically. Financially, Micron posted another quarter of stunning results, with favorable pricing dynamics driving revenues…to extraordinary levels…More importantly, strategically Micron took a significant step towards reassuring investors that its business model has fundamentally changed in an AI era. The company offered significant detail on the nature of the ‘Strategic Customer Agreements’ it is engaging in to ensure strong profitability through-cycle, with both the breadth of agreements (currently at 16 signed with more to come) and depth of disclosures exceeding investor hopes. All told, this report reinforces our view that the fundamental dynamics underlying the memory industry have structurally changed, as memory transforms from being a commodity part to a strategic asset.” UBS: Buy, $1,625 UBS analyst Timothy Arcuri’s price target suggests 55% upside compared to the price at which shares closed on Wednesday. “MU posted yet another beat/raise with guidance at least as good as the most bullish investor bogeys we heard pre-call. As we said in our preview though, this was never really about the numbers per se with the broader debate keyed by commentary on MU’s new SCAs (Strategic Customer Agreements) – something that we wrote about in our recent PT increase that garnered significant attention. MU actually disclosed more than we expected as it tries to sign even more customers to push toward a target of > 50% of revenue inside these agreements that contain floor pricing terms that yield gross margins ‘well above’ prior peak levels. We have been covering semis for nearly 30 [years] so we are sympathetic to investors’ skepticism around these types of agreements, but it seems to us that floor prices are set low enough…that it would probably take into C2029 at the earliest and more likely C2030 until enough supply could come online to drive pricing materially below these levels and make customers even consider breaking the deal.”
About the Author
