Cutting-Edge HBM And AI Memory Solutions Will Propel Future Growth And Profitability

Key Takeaways

• Expansion into high-bandwidth memory and AI-driven solutions is set to significantly boost growth and market share through high-value product differentiation.
  
• Strategic investments and manufacturing expansion are poised to enhance production, reduce costs, and improve profitability and earnings.
  
• Competition, inventory adjustments, and supply challenges could pressure margins and profitability, while slower growth in key areas may impact revenue.

Catalysts

Designs, develops, manufactures, and sells memory and storage products in the United States, Taiwan, Mainland China, rest of the Asia Pacific, Hong Kong, Japan, Europe, and internationally.

• Micron's expansion into the high-bandwidth memory (HBM) market is expected to drive transformational growth, with the HBM total addressable market forecasted to increase 4x by 2028 and exceed $100 billion by 2030. This expansion is anticipated to significantly boost future revenue.
  
• The company's leadership in cutting-edge DRAM and NAND technology nodes supports HBM and AI-driven demand, which will help Micron grow its market share and sustain competitive net margins as it capitalizes on growing demand for advanced memory products.
  
• Strategic capital investments, including securing $6.1 billion from the CHIPS Act and expanding manufacturing facilities, are expected to enhance production capabilities and lead to significant cost reductions, thereby improving future profitability and earnings.
  
• Micron's focus on AI memory solutions is projected to benefit from increasing AI capabilities and demand, driving an accumulated consumer and enterprise use case expansion that could lead to higher revenue growth and improved net margins through differentiated, high-value products.
  
• The ramp-up in high-volume shipments of advanced technology products like HBM3E and a roadmap for HBM4 and HBM4E are likely to sustain Micron's revenue growth by capturing high-value market opportunities, which may support substantial earnings growth and improved profitability.

Micron Technology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Micron Technology's revenue will grow by 14.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.3% today to 24.8% in 3 years time.
• Analysts expect earnings to reach $10.8 billion (and earnings per share of $9.57) by about December 2027, up from $3.9 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $14.4 billion in earnings, and the most bearish expecting $7.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.5x on those 2027 earnings, down from 25.6x today. This future PE is lower than the current PE for the US Semiconductor industry at 30.0x.
• Analysts expect the number of shares outstanding to grow by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.39%, as per the Simply Wall St company report.

Micron Technology Future Earnings Per Share Growth

Risks

• Inventory adjustments and seasonal trends may continue to impact bit shipments and revenue, especially in consumer-oriented markets such as smartphones and PCs, affecting net margins and profits.
  
• Despite technology advancements, slower growth in NAND bit demand and moderation in data center SSD purchases could negatively impact revenue and gross margins.
  
• Increased competition from China in consumer and lower-performance markets, particularly in LP4 and DDR4 DRAM and NAND, could exert downward pressure on prices and profitability.
  
• Extended underloading charges and significant supply actions necessary to manage NAND supply could impact gross margins and earnings in the short term.
  
• High dependence on DRAM and HBM supply balance and the tightness in leading-edge node supply could lead to potential supply chain disruptions, affecting revenue and profitability.

Valuation

• The analysts have a consensus price target of $132.01 for Micron Technology based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $250.0, and the most bearish reporting a price target of just $70.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $43.4 billion, earnings will come to $10.8 billion, and it would be trading on a PE ratio of 17.5x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $89.28, the analyst's price target of $132.01 is 32.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.