Micron: Market Overreacted, Time To Load Up - Maintaining Buy

Core Viewpoint - Micron Technology (MU) is expected to benefit from a recovery in PC and smartphone demand in 2025, with a particular emphasis on AI PCs, which require significantly more DRAM content [1][7]. Market Outlook - PC unit volumes are projected to grow in the low single-digit range for CY24, while smartphone unit volumes are expected to grow in the low-to-mid single-digit percentage range [1]. - The inventory correction cycle for both markets is believed to be complete, but true demand recovery is still anticipated to require a catalyst [1]. AI and DRAM Demand - AI-driven demand for high-bandwidth memory (HBM) is expected to support MU's sales in 2024 and the first half of 2025, as HBM typically has a higher average selling price [7]. - DRAM sales increased by 13% quarter-over-quarter (Q/Q) this quarter and 21% in the previous quarter, indicating strong demand driven by AI applications [7]. - MU's strategic positioning in high-margin products like HBM is expected to enhance its market share [7]. Financial Performance and Guidance - MU is guiding for a 12% quarter-over-quarter growth in 4QFY24 to $7.6 billion, slightly above consensus estimates [4]. - The company plans to allocate mid-30% range of revenue for FY25 capital expenditures, which is higher than the current year due to anticipated demand recovery [4]. - Cash flow from operations for the quarter was reported at $2.48 billion, trailing expectations of $3.24 billion, leading to market overreaction [12]. Stock Performance - Since being upgraded to a buy in late 2022, MU's stock has increased by 135%, significantly outperforming the S&P 500 [9]. - The stock is currently trading at 5.5x EV/C2024 sales, which is lower than the semiconductor peer group average of 7.5x, indicating it may be undervalued [12]. Analyst Sentiment - Of the 37 analysts covering MU, 35 have buy ratings and 2 hold ratings, reflecting strong confidence in the stock's potential [14]. - The median price target for MU is $166, suggesting a potential upside of 19%-24% from the current price [14].