The reporting season for the second quarter has kicked off and many investors are focusing primarily on the chip sector. This comes as no surprise, as Nvidia was the first semiconductor company with a market capitalization of more than USD 3 trillion to climb to the top of the stock market. Expectations of the AI winners are therefore particularly high. With Micron Technology, the first industry representative has now opened its books and promptly caused a cold shower. The tech stock fell by more than 8%. However, there could be an opportunity in this negative reaction.
One after the other: The largest US manufacturer of memory chips achieved sales of USD 6.81 bn in the past quarter, which corresponds to an increase of 17% compared to the previous quarter or a near doubling of the previous year's figure. Micron was thus even able to exceed the average estimates. Meanwhile, operating profit turned positive. While a loss of USD 1.7 billion was recorded 12 months ago, Micron now reported a plus of USD 719 million. In relation to the same quarter of the previous year, this represents an increase of 276%. President and CEO Sanjay Mehrotra blames the robust demand for AI for the good performance. "Robust AI demand and strong execution enabled Micron to drive 17 percent sequential revenue growth, exceeding our guidance range in fiscal Q3. We are gaining share in high-margin products like High Bandwidth Memory (HBM), and our datacenter SSD revenue hit a record high," explains the manager, who celebrated his 66th birthday a few days ago.
However, investors did not feel like celebrating despite the high growth rates. This was not so much due to the completed quarter, but rather to the outlook for the last quarter of the current financial year 2023/24 (August 31). Sales of between USD 7.4 billion and USD 7.8 billion are expected for the current quarter. Although analysts had also only expected USD 7.58 bn on average, the whisper estimates were more than USD 8 bn. Another reason for the share price loss outlined at the beginning could also be attributed to profit-taking after a previously strong performance. Despite the setback, the gain since New Year's Eve still amounts to 54%.
Unlike investors, numerous analysts gave the company the thumbs up after the figures were published. Equity strategist Andrew Jackson from Ortus Advisors, for example, criticized the market for having unrealistically high expectations of the industry in light of the AI hype. The US bank JPMorgan rates the results for the past quarter and the outlook for the current quarter as better than expected and raised its price target for the share from USD 130 to USD 180. Goldman Sachs also sees the price dip more as an opportunity and also raised the fair value of the tech stock. The average price potential of 33 analyses amounts to USD 160.
Micron itself is also looking positively to the future. "We are excited about the expanding AI-driven opportunities ahead, and are well positioned to deliver a substantial revenue record in fiscal 2025," says CEO Mehrotra optimistically. The company has high hopes for the "High Bandwidth Memory" of the HBM3e generation. This is a broadband interface for connecting large quantities of dynamic working memory at chip level to graphics or main processors at high transfer rates. The HBM3e components from Micron hold 24 GBytes and transfer around 1.2 TBytes per second at maximum speed.
However, sales in this area are not increasing that quickly. Only around USD 100 million was generated in the last quarter out of a divisional turnover of USD 4.7 billion. That is just 2.1% to date. In the coming year, however, HBM sales are expected to reach the billion mark, with Group sales of around USD 30 billion. The company from the US state of Idaho is aiming to increase its market share in HBM to around 20% by 2025, which is roughly equivalent to its current share of the market for conventional DRAM chips.
Investors can bridge the current slump in Micron's share price with a yield enhancement product. For the new Softcallable Barrier Reverse Convertibles, it does not matter whether the tech stock rises, stagnates or falls moderately over the next 18 months. This is because the products have a high risk buffer of 41%, which protects the maximum return. Despite the comfortable safety margin, the BRCs are characterized by attractive profit opportunities. The CHF version of the BRCs has a coupon of 12.00% p.a., while the USD version guarantees a payout of 16.00% p.a. In order for the products to achieve the maximum yield in one and a half years at the latest, no price fluctuations are required, only the barrier must remain intact. The term can be shortened to 6 months due to the soft callable function.
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