Shares of semiconductor giant Micron Technology (NASDAQ: MU) have advanced over recent days but are still down nearly 32% so far this year. Micron, one of the leading makers of DRAM (dynamic random-access memory) chips, recently reported better-than-anticipated results for the third quarter of Fiscal 2022 (ended June 2, 2022). However, the company’s dismal fiscal fourth guidance, reflecting weakening demand, triggered stock price target cuts by several analysts.
Micron’s Q4 Outlook Indicates a Slowdown in Demand
Micron’s revenue grew 16.4% to $8.64 billion in Q3 FY22, while EPS jumped nearly 38% to $2.59. Despite the upbeat Q3 performance, the company issued weak guidance for the fiscal fourth quarter to reflect weakness in the global demand for computers and smartphones.
Micron expects Q4 FY22 revenue in the range of $6.8 billion to $7.6 billion, compared to $8.3 billion in the prior-year quarter. The company highlighted that demand in certain consumer markets has been hit by a slowdown in spending in China, the Russia-Ukraine conflict, and soaring inflation.
Given the lower demand, Micron plans to moderate supply growth in FY23 and intends to use inventory to meet some of the market demand. Accordingly, the company expects its capital expenditure on wafer fab equipment to decline in FY23.
However, Micron continues to be optimistic about its long-term growth prospects and expects robust demand for its DRAM and NAND chips, driven by secular growth drivers in several areas, like data center and automotive.
Wall Street has a Moderate Buy Consensus
Following the results, Bank of America analyst Vivek Arya downgraded Micron shares to a Hold from Buy, as he sees concerns beyond the consumer-facing end markets. Arya explained, “Even following topline miss of 20%, PC/smartphone (55%+ of sales) demand weakness is resulting in elevated inventory levels, which is expected to cause a multi-quarter slowdown.”
Arya added that even beyond the consumer markets, he feels that “yellow flags” are emerging across cloud and enterprise customers, which could impact inventory correction. However, the analyst is positive about data center trends.
Meanwhile, Citigroup analyst Christopher Danely lowered his price target to $80 from $85 to reflect the weak near-term outlook. However, he noted that Micron is lowering capital spending to “shorten the pain” and is trading close to a “trough.” Danely lowered his growth estimates but maintained a Buy rating on Micron stock, citing “attractive valuation and secularly increasing fundamentals through cycles.”
Overall, the Street has a Moderate Buy consensus rating based on 19 Buys, five Holds, and one Sell rating. At $81.18, the average Micron price target implies 27.56% upside potential from current levels.
Conclusion
Micron’s recent commentary about the demand for its products clearly indicates a slowdown over the near term. However, despite a weak short-term outlook, the majority of analysts covering Micron stock continue to be optimistic about the company’s long-term growth potential, and the secular demand for memory and storage products.
As per the TipRanks Hedge Fund Trading Activity tool, hedge funds decreased their holdings by 3.1 million shares over the last quarter. Currently, the Hedge Fund Confidence Signal is Very Negative for Micron stock based on the activity of 29 hedge funds in the recent quarter.
