BofA Says Micron Is Trading Under 10x Earnings and Wall Street Is Completely Missing the Story

Memory stocks conscionable went from cyclical spot plays to AI-era essentials, and Bank of America's Vivek Arya thinks the marketplace is inactive pricing them similar the aged version. Speaking connected CNBC the greeting aft Micron Technology (NASDAQ:MU) reported, BofA's elder semiconductor expert argued that "what we are witnessing is what I would telephone a structural alternatively than a cyclical displacement successful the representation industry. It is captious to AI. There is nary AI without memory."

The setup down that telephone is the people itself. Micron delivered fiscal Q3 gross of $41.46 billion, beating statement by 17.60%, and non-GAAP EPS of $25.11 against a $20.28 estimate, the company's seventh consecutive EPS beat. GAAP gross borderline landed astatine 84.6%, up from 37.7% a twelvemonth earlier, a translation much emblematic of a bundle institution than a DRAM maker. Q4 guidance calls for gross of $50 cardinal and non-GAAP EPS of $31, some up sequentially, arsenic elaborate successful the company's 8-K property release.

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What Arya thinks Wall Street is missing

Arya's structural lawsuit rests connected 3 pillars. First, proviso is genuinely hard to add. "You request 3 to 4 times the fig of wafers to make the aforesaid magnitude of capableness with precocious bandwidth representation arsenic you would bash with a accepted product. So it's conscionable harder to create." Second, representation is becoming a meaningful portion of hyperscaler budgets. Memory is astir 5 to 40% of unreality superior spending, and customers tolerate the terms due to the fact that the caller compute stack pays for it. Third, the agreements. CEO Sanjay Mehrotra disclosed multi-year Strategic Customer Agreements covering 16 customers with terms floors, a structural alteration from the spot-market whiplash that defined anterior cycles.

Arya pegs the supply-demand imbalance lasting until astatine slightest the extremity of adjacent year, with AI buildouts moving astatine slightest until the extremity of this decade. Mehrotra's ain framing tracks closely. "Micron's grounds fiscal Q3 fiscal results and adjacent stronger outlook for Q4 bespeak the strategical worth of representation successful the AI era."