New Micron Price Target as Firm Becomes Super-Cycle Leader

The "out of season" earnings release that we had all been waiting on has finally been released. Don't believe me? 

Shares of Micron Technology MU closed on Tuesday afternoon up 39.8% month to date and up 170% from the stock's April low. Regular readers may recall that I wrote to you ahead of this earnings report (September 16) and said, "MU has a chance to end up where Nvidia NVDA was a couple of years ago, as the chip of choice for necessary capex spending. Micron is in the Sarge-folio to stay. It's now just a matter of trading the shares properly as I grow the position." 

Well, now we know just how strong Micron's recent performance has been.

For the firm's fiscal fourth quarter, which ended August 28, Micron posted an adjusted EPS of $3.03 (GAAP EPS: $2.83) on revenue of $11.315 billion. These top- and bottom-line results all easily beat consensus while that sales print was good enough for year-over-year growth of 46.1%. This was an acceleration in year-over-year revenue growth over the past two quarters, as both of those periods showed growth in the high-30%s. Adjustments were made primarily for the purpose of stock-based compensation expense with some restructuring costs added in.

Operations

As sales grew 46.1% to $11.315 billion, the cost of goods sold increased 8.1% to $6.261 billion. That left a gross profit of $5.054 billion (+62%) as gross margin increased from 35.3% all the way to 44.7%. GAAP operating expenses increased 15.2% to $1.4 billion.

This left a GAAP operating income of $3.654 billion (+140%) as GAAP operating margin improved from 19.6% to a stunning 32.3%. On an adjusted basis, operating income grew 126.7% as operating margin improved from 22.5% to 35%.

After accounting for interest, other income and expenses and taxes, GAAP net income printed at $3.201 billion (+260.9%). This works out to $2.83 per fully diluted share, which compares very, very well to $0.79 for the yearago period. On an adjusted basis, net income printed at $3.469 billion (+158.5%), working out to $3.03 per fully diluted share, compared to $1.18 for the same quarter last year. Hard to describe corporate performance like this as anything other than something better than simply "outstanding."

Segment Performance

• Cloud Memory generated revenue of $4.543 billion (+213.5%) as gross margin expanded from 49% to 59% and operating margin increased from 33% to 48%
• Mobile and Client Business generated revenue of $3.76 billion (+214.5%) as gross margin expanded from 32% to 36% and operating margin increased from 20% to 29%
• Core Data Center generated revenue of $1.577 billion (-23%) as gross margin remained flat at 41% and operating margin decreased from 27% to 25%
• Automotive and Embedded generated revenue of $1.434 billion (+16.6%) as gross margin expanded from 24% to 31% and operating margin increased from 11% to 20%.

Guidance

For the current quarter, Micron is projecting revenue generation of $12.5 billion, give or take $300 million. This absolutely crushed the $1.83 billion that Wall Street was looking for. The firm sees a gross margin of 50.5% as reported or 51.5% adjusted. The firm is predicting adjusted operating expenses of $1.34 billion-ish. This would lead to a fully diluted EPS of $3.56 (GAAP) or $3.75, give or take 15 cents (adjusted). That just blows away the $3.04 that had been the consensus view coming in.

Fundamentals

For the period reported, Micron generated operating cash flow of $5.73 billion (+68.35). Out of this number came net capex spending of $4.927 billion (+59.9%). This left free cash flow of $803 million, up nicely from the year-ago comp of $323 million. Out of that, the firm paid out $522 million in cash dividends to shareholders. Micron did not repurchase shares for its corporate treasury, not this quarter, and not even this year, which shows exemplary fiscal discipline in this corporate environment.

Looking at the balance sheet, Micron ended the period with a cash position of $10.307 billion and inventories of $8.355 billion. That put current assets at $28.841 billion. Current liabilities add up to $11.454 billion including just $560 million in shorter-term debt. This leaves the firm's current and quick ratios at 2.52 and 1.79, which is considered more than healthy.

Total assets amount to $82.798 billion, of which less than 2% is in goodwill or other intangibles. That's spectacular. Total liabilities less equity comes to $28.633 billion of which $14.017 billion is in long-term debt. No, the cash position could not cover this all at once, but this balance sheet is very healthy.

Wall Street

They are not all in yet, but so far, I am tracking 20 target price increases for MU stock since this earnings release hit the tape last night. 

Nearly all of these are from five-star rated (by TipRanks) analysts who also reiterated their "buy" or "buy-equivalent" ratings. At this point, I would say the Wall Street high target that I have seen came from Kevin Cassidy of Rosenblatt Securities who took his target from $200 to $250. 

I see 11 new targets at $200 or higher. The most bearish item I've seen so far this morning came from Joseph Moore at Morgan Stanley who reiterated a "hold" rating while increasing his target from $135 to $160.

My Thoughts

Micron is firing on all cylinders, at least all cylinders that matter right now, with the expansion of the AI environments driving this performance. While sales of NAND or flash memory chips are actually lower, demand for high-bandwidth memory (HBM) and server DRAM chips are as hot as they have ever been. It has become apparent to at least this author that the sale of memory is no longer a cyclical, commodity-like business, but that there is now a memory-driven super-cycle underway.

I don't know when or how it cools. When will U.S.-based competition arise? Western Digital WDC and Storage Tech STX are not true competitors. There is competition abroad, but domestic competition might have to come from a traditionally non-memory high-end designer. 

CEO Sanjay Mehrotra said, "In fiscal 2025, we achieved all-time highs across our data-center business and are entering fiscal 2026 with strong momentum and our most competitive portfolio to date. As the only U.S.-based memory manufacturer, Micron is uniquely positioned to capitalize on the AI opportunity ahead."

The improved margins, improved cash flows, and strong balance sheet, not to mention the fiscal discipline all speak for themselves. I am "talking my book," but Micron is worthy. That does not mean that there will be no profit taking after the run that this stock has just had. ​

​As I had previously shown readers, MU broke out from a cup-with-handle bullish set up with a $128 pivot in early to mid-September. Relative strength is still in a technically overbought state. The daily MACD is also extended, with all three components where the bulls want them, but it does look like all three could be rounding.​

Readers will see that MU ​came into earnings having retaken the highs of June 2024 and were pressuring the upper trendline of our Raff Regression model. Take some profits here? I think I will after this piece goes public, but that is just trading. 

I will add those shares back on at a lower price if all goes well. As I mentioned above, MU is in the Sarge-folio to stay, and I plan to grow the position. That said, the stock is just too far removed from its key moving averages. Holding on to the line created by the $157 high of June 2024 would be a big deal and would be a signal to buy back those shares in a hurry.

My Micron Plan

Target price: $196 (up from $188)

Pivot: $157

Add: Between $157 and the 21-day EMA (currently $147)

Add Aggressively: Between the 21-day EMA and the 50-day SMA (currently $127)

Panic: Loss of the 200-day SMA (currently $104)

At the time of publication, Guilfoyle was long MU and NVDA equity.