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Analysts at Mizuho are asking if Micron is the new Nvidia Jr

Published 03/21/2024, 10:06 AM
© Reuters
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The frenzy around artificial intelligence (AI) stocks has extended into 2024, and while Nvidia (NASDAQ:NVDA) stock continues to capture most of the spotlight, the likes of Super Micro Computer (NASDAQ:SMCI) and Dell Technologies (NYSE:DELL) have also been making headlines.

This week, another name is popping up in Wall Street commentaries. Specifically, Micron stock surged sharply following its latest earnings print, and some think this could be the next big AI trade.

Micron’s monster report

Micron Technology's (NASDAQ:MU) stock surged over 17% in premarket trading Thursday, a day after the company unveiled its much stronger-than-expected fiscal Q2 report. The semiconductor company also offered an optimistic outlook for the coming quarter.

In the reported quarter, Micron posted an adjusted earnings per share (EPS) of 42 cents, defying the predicted 25 cent loss per share. The company's revenue reached $5.82 billion, also surpassing the $5.35 billion forecast by analysts.

This marks a significant increase from the $3.69 billion revenue recorded in the same quarter the previous year. Moreover, Micron reported a net income of $793 million, a substantial recovery from a net loss of $2.3 billion in the year-ago quarter.

Looking ahead, Micron has set its revenue expectations for the fiscal third quarter at $6.6 billion, which is also above Wall Street’s expectations of $6.02 billion.

Micron is known for its production of memory and flash storage solutions used in computers, data centers, and smartphones.

With the rapid adoption of AI software, demand for large data centers has increased, benefiting companies like Micron that provide essential memory and storage for these technologies.

Although Nvidia stock often receives attention for its AI-capable graphics processing units (GPUs), Micron's contributions to supporting AI systems through its memory and storage products are also seen as key to the industry's growth.

Is MU the new NVDA Jr?

In recent weeks, AI and semiconductor investors have seen a clear divide: Nvidia stock stands out by continuously surpassing expectations, while other AI-related semiconductor companies struggle to meet forecasts or even project lower future earnings.

Non-AI segments are declining, diluting the impact of AI growth, as seen with Marvell (NASDAQ:MRVL) and Broadcom's (NASDAQ:AVGO) stocks dropping after disappointing guidance.

“Everyone looking around for the next NVDA like trade or AI play, but there really is no other NVDA,” Mizuho trade desk analysts said..

Therefore, over the past few weeks, investors have shifted from other AI semiconductor stocks to Nvidia stock, driven by its GTC event and the unveiling of the new Blackwell product.

“This made MU’s Q2 results and conf call last night super important in my view for the next move in AI Semi trade, which a MRVL or AVGO like reaction likely pushing the broader Semi sector a lot lower (and fast).”

“MU is very well liked and owned due to the high direct attach of their next-gen HBM3e DRAM product that is qualified and selling with NVDA H100 and 200 GPU systems (and soon B100 platform).”

The chipmaker had to deliver a quarterly beat and above-consensus guide. Otherwise, “we would likely see further selling pressure in Semis and fast / momentum money looked elsewhere for beta to the upside,” the analysts noted.

Memory stocks, known for their high volatility and cyclical nature, are currently experiencing a significant rally due to an uptick in the memory cycle. This momentum is expected to sustain, attracting a broad spectrum of investors including mutual funds, momentum and passive strategies, and retail investors, as observed by the analyst.

“I think HFs [hedge funds] will also get behind MU as it now looks and feels like the next best AI related semi long trade after NVDA,” they added.

The analyst believes that optimistic projections for Micron's gross margin and EPS in 2025/2026 could drive the stock price into the mid $100s. Given the early stage of the HBM cycle, concerns about the risks of buying into Micron stock after a 15-20% single-day surge are considered premature.

“You could have another 12 months of beats and raises on HBM as MU just told you it is accretive to GMs starting this qtr and they are confident in ramping output and yields.”

Wall Street falls in love with Micron

MU stock received a series of price target hikes recently, including one by Mizuho Securities, from $105 to $124.

Wedbush and Piper Sandler raised the target price to $130, while Rosenblatt upped Micron stock to a new Street high of $225.

The chipmaker was also raised to Buy from Hold by Argus Research analysts, who said they “see value in the MU shares in the early stage of broad-based memory demand growth.”

“MU investors should be aware of the risks of investing in memory technology, where volatile pricing tends to drive big stock swings,” they added.

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