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Micron's Margins Slip Despite Strong AI Demand

Micron Technology Inc. (MU) shares fell 8% on Friday after the semiconductor company issued a weaker-than-expected margin forecast.

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While demand for its high-bandwidth memory (HBM) chips used in artificial intelligence (AI) applications remains robust, lower consumer memory chip prices have impacted profitability.

The company reported a second-quarter adjusted gross margin of 37.9%, missing the 38.4% estimate from analysts. For the current quarter, Micron projects a margin of about 36.5%, below Wall Street's expectations of 36.9%.

"There has been a challenging industry environment in NAND," said Sumit Sadana, Micron’s chief business officer. The oversupply of NAND flash memory chips, commonly used in consumer electronics, has been a significant drag on margins.

AI Sales Surge Provides a Silver Lining
Despite the margin concerns, Micron's overall sales outlook remains strong. The company expects third-quarter revenue to reach approximately $8.8 billion, surpassing the average analyst forecast of $8.55 billion. Adjusted earnings per share are projected to be around $1.57, exceeding the anticipated $1.48 per share.

AI remains a key growth driver. Micron’s sales of HBM chips topped $1 billion in the second quarter, representing a 50% sequential increase. The company has revised its expectations for the HBM market, estimating it will exceed $35 billion in 2025, up from its previous projection of $20 billion.

"With HBM sold out through this year and demand expected to rise further, we see continued growth into 2026," noted Wedbush analyst Matt Bryson, who raised his price target for Micron to $130.

Mixed Sentiment Among Analysts
While analysts remain optimistic about Micron's AI-driven growth, concerns about NAND oversupply and cyclical weaknesses in traditional memory markets linger. UBS analyst Timothy Arcuri noted that Micron’s increased focus on consumer markets to clear NAND inventory is weighing on margins. Nevertheless, he maintained a "Buy" rating with a $130 price target.

TD Cowen analyst Krish Sankar pointed to the upcoming June qualification of Samsung’s HBM3e chips by Nvidia as a potential catalyst for Micron’s stock. "Micron's near-term performance will hinge on whether its main competitor gains approval from Nvidia," Sankar stated.

Despite the current headwinds, Micron CEO Sanjay Mehrotra remains bullish on the company’s trajectory. "We are on track for record revenue and significantly improved profitability in fiscal 2025," he said.

As AI demand accelerates, Micron’s HBM leadership positions the company to capitalize on the sector’s growth. However, navigating margin pressures from NAND and consumer memory markets will remain a key challenge in the quarters ahead.


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