Micron Announces Q1 Results: How to Play MU Stock Ahead of Earnings

Micron Technology, Inc. MU is expected to report first quarter fiscal 2025 results after the market close on December 18.

The company forecasts first-quarter revenue of $8.7 billion (+/-$200 million). The Zacks Consensus Estimate for revenue is $8.71 billion, representing strong year-over-year growth of 84.3%.

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Meanwhile, Micron estimates adjusted profit of $1.74 (+/-8 cents). Consensus earnings estimates remained unchanged at $1.75 per share over the past 60 days, indicating a significant improvement from the year-ago quarter’s loss of 95 cents.

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The company’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise coming in at 72.7%.

Micron Technology, Inc. Price and EPS Surprise

Micron Technology, Inc. Price EPS Surprise | Offered by Micron Technology, Inc

Let’s see how things turned out before this announcement.

Factors Affecting Micron’s Upcoming Results

Micron’s first-quarter results are expected to reflect a significant boost from growing demand for memory chips, driven by increasing adoption of GPU-enabled artificial intelligence (AI) servers. As data center operators expand their infrastructure to support generative AI and large language models, memory chips have become essential components. This increase in demand for AI-driven technologies is likely to have bolstered Micron’s revenue in the quarter.

Another positive factor is the improving supply-demand dynamics in the memory chip market. Over several quarters, Micron faced headwinds from excess inventory in various sectors, which had a major impact on its financial results. However, conditions have improved over the past year, leading to price improvements for its core products – DRAM and NAND chips.

According to the Zacks Consensus Estimate, DRAM sales are expected to reach $5.92 billion in the first quarter, representing impressive year-over-year growth of 91%. Likewise, NAND sales are forecast at $2.6 billion, an exceptional increase of 111.5% over the same period last year. These numbers highlight Micron’s ability to benefit from favorable market trends.

However, challenges remain. Inflationary pressures and macroeconomic uncertainties have dampened consumer spending and likely reduced demand for memory chips in key markets such as smartphones and PCs. Additionally, Micron’s heavy reliance on China poses a risk given ongoing US-China trade tensions. Margins could also suffer from pressure from a larger mix of lower-margin NAND products and limited cost-saving progress in manufacturing processes.

Micron stock price development and valuation

Year-to-date (YTD), Micron shares have risen 19.6%, underperforming the Zacks Computer and Technology sector’s 34.5% growth. Compared to other large semiconductor companies, MU stock has underperformed NVIDIA NVDA, Marvell Technologies MRVL and Texas Instruments TXN, which posted year-to-date gains of 181.3%, 84.6% and 12.4%, respectively.

YTD price-return performance

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Now let’s look at the value that Micron offers investors at current levels. MU stock is trading at a discount, with a 12-month P/E ratio of 2.79X compared to the broader technology sector’s 6.28X.

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Investment Consideration for MU Stock

Micron benefits from improved market dynamics, effective sales strategies and strong performance across its various businesses. A key driver of revenue growth was improving data center inventories coupled with stabilization in markets such as automotive, industrial and other sectors. These developments reflect a healthier demand environment that has strengthened the company’s top line performance.

Looking forward, Micron expects a favorable pricing environment for DRAM and NAND chips next year, which will further increase its revenue potential. The surge in demand for AI servers has led to a shortage of advanced DRAM and NAND supplies, setting the stage for price increases. Additionally, the accelerated adoption of 5G in Internet of Things (IoT) devices and wireless infrastructure is expected to further drive demand for Micron’s memory and data storage solutions and strengthen the company’s market position.

However, challenges remain. Ongoing trade tensions between the US and China remain a critical risk factor. Given Micron’s significant exposure to the Chinese market, any escalation in disputes could disrupt the company’s supply chain or lead to new tariffs, which would directly impact its margins. Additionally, while the pricing outlook for memory chips appears robust, the company’s reliance on lower-margin NAND products and its slow progress in achieving manufacturing efficiencies could dampen profitability growth in the near term.

Micron’s future looks bright, but navigating these headwinds will be critical to maintaining momentum.

Conclusion: Hold MU stock for now

Micron is in a strong position to deliver solid growth, driven by increasing demand for memory chips in AI servers and improving market dynamics. However, challenges such as trade tensions with China and margin pressure are likely to dampen expectations of a significant breakthrough in the near future.

Given the attractive valuation and improving fundamentals, holding Micron stock for now seems to be the best strategy. The company has great potential, but investors should wait to see how the macroeconomic environment and trade relations develop before making any aggressive moves. For now, it’s best to remain patient and watch the Zacks Rank #3 (Hold) stock heading into first-quarter earnings. You can see You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Texas Instruments Incorporated (TXN): Free Stock Analysis Report

Micron Technology, Inc. (MU): Free stock analysis report

NVIDIA Corporation (NVDA): Free Stock Analysis Report

Marvell Technology, Inc. (MRVL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.