Micron needs a new memory boost

Since hitting an all-time high three months ago, the memory-chip maker’s stock price has plunged 41%. That is far beyond the drubbing most other chip stocks have taken in that time, as the market has begun to cool on artificial-intelligence hype. Micron rode that wave well: When the company reported its fiscal third-quarter results in late June, its share price had logged a 12-month gain of 118%, second only to Nvidia among stocks on the PHLX Semiconductor Index over that period, according to data from S&P Global Market Intelligence.

Why such a harsh turn? Despite booming demand for AI systems that use a specialized—and expensive—form of memory, much of Micron’s business still comes from personal computers and smartphones. Those are mature markets that have picked up sales slightly this year but still tend to grow at low single-digit rates at best. Makers of PCs and smartphones also began building up inventory of DRAM memory in the first half of this year, anticipating higher prices in the second half.

That inventory buildup—along with weaker sales of PCs and smartphones in the second half—is now expected to weigh on the pricing gains that producers such as Micron have been enjoying of late. Some have also worried about potential oversupply for high-bandwidth memory, or HBM, used in AI systems, as more producers have entered that market. “We believe HBM demand is intact and calls for oversupply next year are unsubstantiated," wrote Brian Chin of Stifel in a report last week. He added, though, that sales of consumer electronics that help drive memory demand have “underwhelmed."

Weakness might not be readily apparent in Micron’s fiscal fourth-quarter report, coming Wednesday afternoon. Wall Street expects Micron’s revenue to surge 90% year over year to $7.6 billion, with adjusted operating income projected to hit nearly $1.6 billion—the company’s highest in two years.

But Micron’s last two quarters have been particularly strong, with some elements not expected to repeat. Analysts estimate the company’s average selling price per 1 gigabyte of DRAM memory rose 9.1% during the August-ended quarter—a sharp slowdown from the 22.2% jump seen in the May-ended period, according to consensus estimates from Visible Alpha. That is expected to slow even further over at least the next two quarters, with analysts expecting a 5.1% sequential gain in DRAM pricing during the period ending in February 2025.

Wall Street currently sees Micron’s predicament as temporary; 90% of analysts rate the stock as a buy, compared with 76% when the company was still mired in a sharp sales slump a year ago, according to FactSet. In a note last week, Tim Arcuri of UBS said he was “steadfast that the slowdown in DRAM price increases is temporary as PC/smartphone customers likely come back to the table next year given the step up in memory content for edge AI applications." Mehdi Hosseini of Susquehanna wrote last month that “memory is currently in a ‘mid-cycle’ correction in the middle of a longer up-cycle."

Micron projects only one quarter out during its reports, so this week’s release might not turn the tide, as the soft memory-pricing trend is expected to persist through the rest of this calendar year. “While we acknowledge the stock will remain weak until DRAM pricing reverses, we believe this should happen within 3-6 months," Chris Danely of Citigroup wrote in a note Friday. Micron’s thrill ride may have a few more twists and turns yet.

Write to Dan Gallagher at dan.gallagher@wsj.com