Micron Technology 's (NASDAQ: MU) 2024 stock market rally came to a screeching halt last week after the company released fiscal 2024 third-quarter results (for the three months ended May 30). The memory specialist's outlook didn't exceed Wall Street's expectations by a big enough margin, and the stock fell almost 8% just after its release.
Micron's share prices were up nearly 67% in 2024 before its results came out, and the company headed into this latest report with high expectations thanks to the booming demand for its artificial intelligence (AI) chips. Those elevated expectations help explain why everyone was looking for a bigger beat than what Micron delivered.
Let's take a closer look at Micron's quarterly report and see if the pullback is an overreaction.
Analyzing Micron Technology's quarterly numbers and guidance
Fiscal 2024 third-quarter revenue was $6.8 billion, a massive increase of 81% from the year-ago period and well ahead of the $6.67 billion consensus estimate. It is worth noting that the company's top line was well ahead of the midpoint of management's $6.6 billion guidance.
Meanwhile, stronger memory prices led to a sharp jump in Micron's margins and helped it become profitable. The company reported an operating income margin of 14% for the quarter, up from a negative reading of 39% in the same period last year. As a result, it swung to an adjusted profit of $0.62 per share from a loss of $1.43 per share in the same quarter last year.
The bottom-line performance was well ahead of the company's guidance of $0.45 per share and crushed the Wall Street estimate of $0.48. The good part is that Micron's guidance points toward more stunning growth in the current quarter.
The semiconductor company forecasts adjusted earnings of $1.08 per share in the fourth quarter on revenue of $7.6 billion. For comparison, it posted an adjusted loss of $1.07 per share on revenue of $4 billion in the same period last year. So its top line is set to increase an impressive 90% on a year-over-year basis, which would be an acceleration over the previous quarter's growth.
What's more, the outlook is better than analysts' expectations of $1.02 per share in earnings on revenue of $7.59 billion. But it looks like investors expected stronger guidance and pressed the panic button when its outlook turned out to be just ahead of expectations. This seems like an overreaction since the company is set to grow at an even better pace this year.
Micron coasted past its guidance last quarter, and there is a good chance it might do so once again thanks to AI, a catalyst that could help the stock soar impressively over the next year. Let's look at why.
AI could help this chipmaker sustain its phenomenal growth
Micron's data center revenue shot up an impressive 50% on a quarter-over-quarter basis with the solid demand for its high-bandwidth memory (HBM) chips. Management points out that the company "grew share in high-margin AI-related product categories such as HBM (high-bandwidth memory), high-capacity DIMMs and data center SSDs."
It generated $100 million in revenue from selling HBM chips last quarter. More importantly, management says it expects to finish fiscal 2024 with "several hundred million dollars" in HBM revenue. In fiscal 2025, which will begin in September this year, it is forecasting "multiple billions of dollars in revenue from HBM."
This huge market for HBM can be attributed to the growing demand for AI chips made by the likes of Nvidia and Advanced Micro Devices . These chipmakers are packing larger HBM chips into their AI graphics cards to increase memory bandwidth and computational power so that they can train large language models .
Micron says that its HBM capacity is sold out for 2024 and 2025. Investors should also note that HBM demand is forecast to grow rapidly in the long run.
Goldman Sachs predicts that the HBM market could double each year between 2023 and 2026 and generate annual revenue of $30 billion after a couple of years. So Micron's impressive AI-fueled growth is here to stay, which explains why its top and bottom lines are estimated to increase rapidly over the next year.
The company generated $17.3 billion in revenue in the first nine months of fiscal 2024. Its fourth-quarter guidance indicates that it is on track to finish the year with nearly $25 billion in revenue, which would be a 61% increase over the previous year. That's higher than analysts' expectations.
MU revenue estimates for current fiscal year; data by YCharts.
Also, as the chart above tells us, analysts are expecting Micron's revenue to increase nearly 50% in fiscal 2025. But it won't be surprising to see the company clocking faster growth as its HBM revenue growth accelerates on the back of healthy AI chip demand. Even better, the company's bottom line is expected to grow by nearly a multiple of 9 in the next year as compared to fiscal 2024.
MU EPS estimates for current fiscal year; data by YCharts.
This growth can be attributed to the strong memory-pricing environment as demand is outpacing supply. For instance, HBM prices are expected to rise by 5% to 10% next year. When combined with the massive jump in sales volumes, it is easy to see why bottom-line growth is set to take off in the next year.
Given that Micron stock trades at just 19 times forward earnings -- a discount to the Nasdaq-100 index's forward earnings multiple of 29 (using the index as a proxy for tech shares) -- buying this AI stock following its latest pullback looks like a no-brainer as the rapid jump in its earnings could help it sustain its impressive rally over the next year.
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy .
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