Earnings Outlook: Micron earnings preview: How much has AI benefited the memory-chip maker?

In a note titled “Earnings Preview: For a Change…” BMO Capital analyst Ambrish Srivastava said he expects “the focus of the earnings to shift toward the eventual upturn after a long and steep downturn, and skewed a little more toward Micron’s product portfolio to address opportunities in the data-center market.”

Srivastava, who has an outperform rating and an $80 price target, said he still cares “plenty” about the trajectory of Micron’s gross margins, which have been negative over the past few quarters, along with those of pricing, capital expenditures and free cash flow.

While the memory market has been weak lately, Deutsche Bank’s Sidney Ho upgraded Micron to a buy last week as he thinks AI servers are helping provide a lift, and that DRAM prices “started to improve at least one quarter ahead of our expectations.”

Micron specializes in making DRAM and NAND memory chips. DRAM, or dynamic random access memory, is the type of memory commonly used in PCs and data-center servers, while NAND chips are the flash memory chips used in smaller devices like smartphones and USB drives.

Read: AI will accelerate Micron’s recovery, analyst says

Specifically, one product to look for is Micron’s 1-beta DRAM chips designed for data centers, which are boosting demand for the hardware needed to power large-language models and generative AI, like Microsoft Corp.
MSFT,
+0.17%
-backed Open AI’s ChatGPT. Micron began shipping the 1-beta to certain smartphone makers and chipset partners last November.

Back in July, Micron and Nvidia Corp.
NVDA,
+1.47%
also announced that Nvidia was using Micron’s HBM3 Gen2 high-bandwidth memory chips in its AI data-center products.

Read: Micron’s stock might be an excellent play for AI investors who want to diversify beyond Nvidia

In the company’s last earnings report, Micron Chief Executive Sanjay Mehrotra called the bottom in the memory-chip market, but warned that smartphone and PC weakness could cut into AI gains.

Also back in late June, the company snapped a losing streak of four consecutive quarters of reporting revenue that fell short of the Wall Street consensus. The quarter before snapping that streak, Micron reported its largest quarterly loss on record, and wrote off more than $1.4 billion in inventory.

Analysts surveyed by FactSet forecast Micron to report a fourth-quarter loss of $1.15 a share on revenue of $3.95 billion. For fiscal 2024, analysts expect a loss of 77 cents a share on revenue of $20.34 billion.

The company came off its worst quarter ever in March, with a loss of $2.12 a share, or $1.91 on an adjusted basis.

Of the 37 analysts who cover Micron, 28 have buy-grade ratings, seven have hold ratings and two have sell ratings, along with an average price target of $81.27, according to FactSet.

Read: Micron CEO calls bottom in memory-chip market, but weak PC, smartphone forecasts cut into expected AI gains

Micron shares are up 37.2% year to date, compared with a 33.9% gain in the PHLX Semiconductor Index
SOX,
a 13% gain by the S&P 500 index
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and a 32.4% rise in the Nasdaq Composite
COMP.