Micron Technology 2Q Preview: Revenue Upside, Margin Pressure Ahead

Micron Technology (MU) is set to report its fiscal second-quarter earnings on Thursday, March 20, 2025. The semiconductor giant is expected to deliver results broadly in line with market expectations, but analysts are warning of potential revenue upside coupled with margin pressure. Let's dive into the details and explore what investors need to know.



The Revenue Upside

Micron Technology has been riding the wave of the AI boom, with its high-bandwidth memory (HBM) solutions in high demand. The company's data center revenue, which includes its HBM products, saw a staggering 400% year-over-year increase in the fiscal first quarter of 2025. This segment alone contributed more than 50% of the company's overall revenue, a testament to the growing demand for AI-related products.

Analysts are optimistic about Micron's revenue prospects for the fiscal second quarter. RBC Capital Markets analyst Matt Bryson reaffirmed an Outperform rating and a price target of $125, citing potential revenue upside driven by improved shipment levels, a rebound in client demand, and normalization of customer inventory levels. Bryson noted, "Micron Technology had suggested that its sequential revenue growth in the fiscal third quarter may be boosted by improved shipment levels, with a rebound in client demand and normalization of customer inventory levels."

The Margin Pressure

While the revenue outlook is promising, margins are expected to come under pressure. Softer DRAM and NAND pricing at the beginning of the year could push Micron's margins into the lower half of the fiscal second-quarter guidance range. Bryson warned, "Softer DRAM and NAND pricing in the beginning of this year could push the company's margins into the lower half of the fiscal second-quarter guidance range."

Additionally, the rebound in client demand and normalization of customer inventory levels are expected to cause a mix shift towards lower margin parts, which could cause margins to contract by a "few hundred bps." Bryson further elaborated, "With our model already contemplating a 260 bps dip in GMs and a modest lift in revenues, we see some potential again MU is able to project revenue upside vs. our estimates, but also with more modest margins vs. our expectations."

Analyst Sentiment

The market sentiment towards Micron Technology is generally positive. The consensus rating for Micron Technology is "Strong Buy," based on 22 Buy recommendations and 2 Hold recommendations. The average price target for Micron Technology is $136.83, which is 34.08% higher than the current price of $102.10. This significant upside potential suggests that analysts expect the stock to appreciate substantially in the near future.



Implications for Investors

For potential investors, the current analyst ratings and price targets have several implications. Firstly, the strong buy consensus and high price targets suggest that Micron Technology is seen as a promising investment opportunity with significant upside potential. Secondly, the analysts' optimism is based on the company's strong financial performance, innovative product offerings, and favorable market conditions.

However, potential investors should also consider the risks and uncertainties associated with investing in Micron Technology. The company has cautioned about slower growth in some parts of the consumer devices market and inventory adjustments, which could impact its financial performance in the near term. Additionally, the memory market has proved to be a volatile one throughout 2024, as prices were expected to increase and benefit memory suppliers, but research firm TrendForce reported in late September that customers were milking their own inventories to avoid the price hikes.

Conclusion

Micron Technology is poised for revenue growth in the fiscal second quarter, driven by the AI boom and improved shipment levels. However, margin pressure due to softer DRAM and NAND pricing and a mix shift towards lower margin parts could impact the company's financial performance. Investors should weigh the potential revenue upside against the margin risks and consider the company's strong financial performance and innovative product offerings when making investment decisions.