Micron's 'stumbling block' could be its Q4 revenue guidance

Micron Technology's (MU) fiscal third-quarter earnings results topped estimates, reporting adjusted earnings of $0.62 per share (expected $0.50 per share) and $6.81 billion in revenue (expected $6.67 billion) after the market close on Wednesday. While closing just a pinch higher in Wednesday's regular trading hours, Micron shares are dropping in after-hours trading.

Synovus Trust Senior Portfolio Manager Dan Morgan comes onto Market Domination Overtime to comment on the chip company's guidance while it's now being considered a top AI play. Micron's stock has currently swung higher by over 72% in 2024 year-to-date.

"It looks like the stumbling block right now.... was that revenue number $7.6 billion plus-or-minus $200,000, that's exactly what the Street was looking for," Morgan tells Yahoo Finance. "I was looking over kind of what the expectations were, and the motto really seemed to be 'beat on the third quarter and raise on the fourth quarter.' And the fact that they didn't raise that revenue number and they came in line, I think that... is why we're seeing the stock sell off a little bit."

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Luke Carberry Mogan.

Video transcript

Mike Roche is sliding after hours despite a beat on the top and bottom line, Sonova, senior portfolio manager, Daniel Morgan joins us now to discuss Dan, it's always good to have you on the show and, and maybe then we'll just start, you know, big picture.

Give us your take on this mic Miron print Dan.

What, what do you make of it at least initially?

Uh in the after hours, investors seem disappointed stocks down about 8%.

Yeah, it's interesting, Josh, because, you know, you read those numbers off for the third quarter and there was a big beat, right?

6.8 billion versus 6.6 billion in revenues.

And then the consensus estimate earnings per share of 50 cents, it came in what?

62 cents?

Then we flip over to the guidance going into the fourth quarter.

And if you look at the midpoint of their eps range would be about a dollar 08 a share which is above consensus, which was about a dollar.

But it looks like the stumbling block right now.

Josh and Julie was that revenue number 7.6 billion plus or minus 200,000.

That's exactly what the street was looking for.

And it seemed like before I came into the studio I was looking over kind of what the expectations were and the motto really seemed to be beat on the third quarter and raised on the fourth quarter.

And the fact that they didn't raise that revenue number and they came in line, I think that Josh is why we're seeing the stock sell off a little bit.

And if you look also at the sort of forward pe on this stand, um, it's high, you know.

Yeah.

So, you know, when we just heard Jared saying a few moments ago, the stock is training near a record, it's got this high pe so I guess, does that leave them pretty small margin for any kind of error or perce perceived error?

And you know what's interesting Julie is if you look at the price to book, which I like to look at when I analyze, you know, semiconductor stocks, stock trades at about 16 times forward earnings.

So you're right.

It's kind of high for micro, but we look at that price to book level right now at 3.6 times averages about 1.7 times book.

And they've traded in a range in the last five years about one times, book 3.6 books.

So they're on the high end of their price to book ratio.

So I think you're right, the stock has made a big run up, everyone's been very excited about how uh A I is impacting the memory business, especially in D RA M. We'll get more of that on the conference call with their high bandwidth memory chips.

And that's kind of made a big catalyst to move the stock higher and really push up those valuation benchmarks.

So they, like you say, Julie, there just wasn't a lot of room for error.

They had to, they had to beat and raise to really drive the stock higher based on the current valuations.

As you point out, Danielle, listen here at least knee jerk after hours, it's getting hit.

But the move in the stock was absolutely tremendous this year and over the past 12 months, I mean, clearly investors had really decided that Mikron is just a smart way to play this mega A I trend that it was going to benefit from A I servers and A I enabled P CS and smartphones.

Um Do you agree with that, Dan is Mike, do you think a smart long term way for investors listening right now to play that A I trend?

You know, Josh, to be honest with you, if you look at Mikron in terms of the expectation for revenues coming into fiscal year 24 we're closing down next quarter, they'll probably do about 5% of their revenues.

What's called high bandwidth memory.

That's the A I memory chip that everybody's really excited about.

We know that Mikron will mostly track with the roll out of the H 200 which is the Hopper 200 NVIDIA chip.

So a lot of people feel that uh NVIDIA is gonna be using mis high bandwidth memory chips for their H 200.

So obviously, if NVIDIA is doing well and they're rolling out the, you know, Hopper 200 it's going really well than the expectations were that we would see that come down into the micro number.

So to answer your question though, Josh, in terms of percentage of revenues that they get directly from A I, it's not nearly as high, let's say, a Broadcom, which is about uh about 15 to 16% of revenues A MD should get more revenues due to their mix, 300 mix, uh their M I 300 X and M I 300 A chips.

Uh So anyway, I don't know, Josh, if, if Mikron is the best chip player to play A I, if that makes sense.

So I guess who I, who would be, first of all, do you guys, do you guys own any, do you own any Mikron?

But sort of how are you thinking about that strategy right now?

Yeah, you know, in the A I space, uh obviously we own NVIDIA.

We've talked about that before on previous shows that we've done together, uh We own Broadcom, which is another play in that space, applied materials in the capital equipment area.

Names that we don't have on our buy list.

But names that people could look at, obviously, uh we mentioned a MD.

Uh that's a name Marvel technology would also be a name in that space.

So uh those would probably be the top Broadcom would be kind of top of that heap right now, in terms of direct A I plays again, Mikron is AD RM producer, the very much of a commodity type of chip that they make and their total amount of revenue directly tied to A I, at least from previous calls we have uh has not been as substantial as let's say an NVIDIA or let's say a Broadcom, right?

Got it.

Dan Morgan.

Thanks so much for your insight.

Appreciate it.

It was helpful.