Micron (MU), Hidden Variables in Earnings Surprise..."Share Buybacks Sealed Until December"

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Micron Technology Inc. (MU) released earnings and guidance that exceeded Wall Street expectations, but its stock showed a subtle reaction amid concerns about a slowdown in gross profit margin in the first quarter.

Matt Bryson, an analyst at Wedbush Securities, said in an interview with CNBC on October 1 (local time), “The revenue guidance was presented at a level exceeding $38, which is the most important figure that falls precisely in the middle of the $36 to $40 range expected by institutional investors.” Micron achieved an earnings surprise in the previous quarter, surpassing market forecasts for both revenue and earnings per share (EPS), and its revenue and EPS outlook for the next quarter also remained strong.

Regarding concerns about a slight slowdown in gross profit margin in the first quarter, raised by some parts of the market, it was diagnosed that this could be a positive result due to the increased proportion of high-bandwidth memory (HBM) shipments for artificial intelligence (AI). Bryson explained, “If the slowdown in profit margin is due to a significant increase in HBM shipments to support AI demand, then this is not a negative factor at all,” adding, “Our own price surveys show that while memory price increases have somewhat moderated, they are still continuing an upward trend.”

Rather than concerns about oversupply, the explosive growth of artificial intelligence demand is expected to continue to drive the memory market. Bryson acknowledged that new supply facilities could become fully operational by late 2027 or 2028, but emphasized that demand for key accelerators and central processing units (CPUs) like Broadcom Inc. (AVGO) is doubling. The analysis suggests that as long as the amount of memory required per computing chip remains the same, even with increased additional supply, it will be difficult to keep up with the surging demand.

For shareholder return policies based on free cash flow, share buybacks are expected to be the key method. However, Bryson pointed out that Micron is restricted from buying back shares until December 9, according to the conditions for receiving subsidies under the U.S. CHIPS Act. He noted that it would be difficult for additional large-scale cash distribution plans to be disclosed in the earnings call before this regulation is lifted.

[Article Key Summary]

-Micron presented earnings exceeding expectations and revenue guidance above $38.

-Concerns about a slowdown in first-quarter profit margins were analyzed as a natural phenomenon due to increased HBM shipments for AI semiconductors.

-Due to the conditions of the U.S. CHIPS Act subsidies, shareholder returns through share buybacks are expected to fully commence after December 9.

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