Micron shares surge on upbeat forecast, predicting swift recovery in chip demand

Shares of chipmaker Micron Technology soared by 7 per cent on Thursday following its optimistic outlook, anticipating a robust recovery in the supply-demand equilibrium for memory and flash storage in 2024. The company's quarterly results, released on Wednesday, surpassed market expectations, signalling a promising trajectory for memory chip prices in the coming year, marking an upturn after months of decline.

Micron's shares soared to near 21-month high, peaking at $85.99 on Thursday, reflecting a roughly 60 per cent gain for the year, fuelled by expectations of an industry-wide recovery. The company reported that its stock levels for most customers across various markets, including personal computers, mobile, automotive and industrial sectors, are either at or near normal levels. Additionally, it indicated that data centre inventories are anticipated to approach those levels in the first half of 2024.

Morningstar analysts noted that market rebounds are occurring earlier than initially anticipated, contributing to the positive sentiment surrounding Micron's performance.

The optimistic results and forecasts from Micron have raised expectations for other chip companies expected to report in the early months of the coming year. This sentiment was reflected in the 2 per cent rise of the Philadelphia SE Semiconductor index, driven by gains in shares of companies such as Nvidia, Advanced Micro Devices, Qualcomm, Intel and Broadcom.

Micron also revealed that it is in the final stages of qualifying its high-bandwidth memory chips for use in Nvidia's powerful AI platforms. These high-end memory chips, among Micron's most profitable products, are expected to generate "several hundred million" dollars in revenue in fiscal 2024.

Analysts foresee the demand for AI-driven chips as a significant tailwind for Micron's continued rebound. Piper Sandler analysts noted that rising demand for such chips is likely to be a positive force for Micron for at least the next two quarters and potentially longer.

Following the results, at least 12 brokerages raised their price targets, according to LSEG data. Micron's forward price-to-earnings ratio stands at 32.45 for the next 12 months, compared with the industry's 21.03, indicating strong investor confidence in the company's growth prospects.

(With Reuters inputs)