Micron shares surged after the company’s third-quarter earnings beat expectations. CFRA Research Senior Equity Analyst Angelo Zino joins his Yahoo Finance Live to discuss Micron’s performance and how the company can finally join his AI hype.
video transcript
Julie Hyman: AI, the latest craze on Wall Street, and its hype have contributed significantly to the stock market rally this year. His staggering 181% surge in Nvidia has contributed significantly to the rise of the Nasdaq, with investors continuing to pour money into all sorts of chip names. AMD recently unveiled a new AI chip with accelerators to speed up technologies like ChatGPT, drawing attention from market leader Nvidia.
But could headwinds hinder the growth of the chip industry? The Wall Street Journal reports that the United States is considering new restrictions on AI chip shipments to China. This is due to growing concerns over the potential threat of advanced AI in the hands of US rivals. Shipments to China from chip makers such as Nvidia could be blocked by the Commerce Department as early as next month.
One of the chipmakers we’re looking at today is Micron. Shares surged in premarket trading after the company beat Wall Street expectations and gave a bright outlook for fourth-quarter sales. But let me be clear here, this is a company with less exposure to the AI industry. A manufacturer of memory chips that are installed in all devices from PCs to smartphones. It’s a strange calculation. Let’s get down to business.
To learn more about the chip industry, and Micron in particular, join Angelo Gino, Senior Equity Analyst at CFRA Research. Angelo, thank you for being here. Talk about where Micron stands in this new revolution. Because this he is not Nvidia. This is an old fashioned memory chip manufacturer. So what’s going on with AI, and how can we get it, if at all?
Angelo Gino: Yes, that’s right. So for those who are seen as direct and biggest beneficiaries from things like AI themes, we can’t say they are one of our favorite four names of him. there. But I think there’s a way to play Micron in terms of AI theme types. In short, more and more memory will be needed as more and more advanced AI-driven servers emerge. It’s like being thrown on those servers.
A big reason for that is, we’re talking about supercomputers, large-scale language models. Obviously, you need more memory, right? So when you start thinking about this kind of advanced next-gen server, you’re thinking about the possibility that it will have 6-8x more DRAM content, 3x more NAND content You are talking.
As for where Micron stands here on the AI theme, it’s kind of like the larger memory theme. And obviously they’re becoming more DRAM driven, which is a positive sign for them. Over 70% of his revenue goes to DRAM. So there’s a sort of memory or Micron leaning towards AI themes. But right now, when it comes to AI servers, they’re still only in the low single digits as a percentage of total server revenue. So it’s a long way from a very low base to get here.
Brad Smith: The recovery in PC demand continues to be emphasized quarter after quarter, but it also has a long way to go. And what we’ve gotten about some of the trends in what they’ve shared in their timeline, it sounds like early 2024 that transition or some of that cycle could start to reappear . Do you think the streets have a firm grip on that now?
Angelo Gino: Yeah, I think so too. Listen, as far as Micron and the memory industry are concerned, I think management has actually done a great job of softening public expectations. Part of that clearly has to do with concerns about China, which will have some impact on the company’s earnings over the next quarter or two.
But on top of that, they’ve basically pushed all sorts of ambitious expectations further into calendar 25. It seems that people are paying attention to his August quarter next year to see where the current profitability is. But it’s only in the first half of the 24-year calendar that the momentum for that demand really starts to pick up, and he’ll continue to accelerate as the 24-year calendar progresses. But when it comes to how investors should approach the Micron theme, investors want to get on board with the name long before we see the momentum really start to build. is clear.
And across the industry, especially on the smartphone side, and even on the PC side, there are signs that OEMs are starting to capitalize on these lower prices and lock them in. As a result, the awareness of the industry as a whole is increasing. And that’s where the pricing starts to tighten and we’re starting to see a trajectory where we’ll see pricing improvements over the next six to eight quarters.
