One of the leading chipmakers in the US, Micron (MU.US) reported financial results yesterday that slightly beat expectations in terms of revenue, loss per share came in below forecasts. The company pointed to higher demand around AI chips and forecast a balancing of supply and demand in the global memory chip market. The oversupply from the post-pandemic surge in demand continues to weigh on many companies in the sector, which have been forced to sell memory chips at lower prices. Micron said it expects the oversupply to be reduced. However, the company pointed to a sizable negative impact from Chinese sanctions, which appeared to be a response to US trade blockades targeting Beijing. As you can see, concerns about the Chinese market were not even offset by optimism around AI.
Revenues: $3.752 billion vs. $3.646 billion forecast (57% y/y decline)
Start investing today or test a free demo
Create account Try a demo Download mobile app Download mobile appLoss per share: $1.43 vs $1.58 forecast and $2.53 profit in the corresponding quarter of last fiscal year
Current fiscal quarter forecast: $3.9 billion in revenue and $1.34 loss per share
- The Chinese regulator's decision to impose a sanction on product sales to China appears to be a key risk factor besides the recession, which could negatively affect the company's business in the short, medium and long term. According to a commentary on the results, 'low double-digit' revenues are at risk, with business in China and Hong Kong accounting for 1/4 of the company's total sales.
- However, the company expects a balancing of demand and supply, which could improve its margins. The company's main competitors are Samsung and SK Hynix, which so far have not been affected by Chinese sanctions and could take some share of the Asian market.
- Moor Inisghts analysts pointed to the company's long-term potential due to its technological advantages, which could allow it to benefit from higher demand for AI chips. They pointed out that demand for chips for traditional servers is still weak, but for dedicated chips for the AI sector is very high
- The company is trading with a PE ratio close to 50 points which, in light of negative ROIC and a nearly 9% WACC, makes the market likely to question such a sizable premium. Especially if the overall economic slowdown does not quickly improve the memory chip market. The company is generating a loss per share and its situation in China is highly uncertain in light of the US-China relations crisis. Long-term investors may also be pricing risk on the side of next year's elections in Taiwan.
- After the report, investors may be considering whether all chip stocks, which have been gaining rapidly since the beginning of the year, deserve a significant premium.
Micron (MU.US) shares D1 interval. The stock is in an uptrend, but a drop below the 38.2 Fibonacci retracement of the upward wave from December puts a question mark over a potential test of $58 per share, where we see 61.8 Fibo retracement and previous price reactions. Source: xStation5
The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.
