Micron’s Better-than-Expected Results Boost Confidence in AI Adoption
Recent outcomes from memory chip specialist Micron Technology have substantiated that the adoption of artificial intelligence (AI) continues to have significant growth potential.
Since early last year, the semiconductor industry has garnered increased attention from investors, particularly due to burgeoning developments in AI. This technology relies heavily on advanced processors, which has uplifted much of the semiconductor sector. Despite a sharp rise in AI stocks initially, many have plateaued in recent months as investors awaited further confirmation of ongoing growth momentum.
Amid this context, several prominent semiconductor stocks saw notable movement on Thursday. Taiwan Semiconductor Manufacturing (TSM) increased by 1.9%, ASML Holding (ASML) rose by 3.7%, and Indie Semiconductor (INDI) surged by 7.4% as of 12:46 p.m. ET. Despite no specific regulatory filings, financial reports, or analyst price target changes to explain these increases, the stock movements appear to be in response to positive financial results from another key player in the AI sector.
Micron’s Strong Performance
Micron Technology released its fiscal 2024 fourth-quarter report after the market closed on Wednesday. The results prompted a positive reaction from investors. For the quarter ending August 29, Micron reported a revenue increase of 93% year-over-year to $7.75 billion, marking a company record, and a sequential rise of 14%. Adjusted earnings per share (EPS) reached $1.18, a significant improvement from the previous year’s loss of $1.07 per share. This growth was largely driven by rising demand for high-bandwidth memory used in data centers and AI, which improved the company’s profit margins.
Micron’s results surpassed Wall Street’s consensus expectations, which forecasted revenue of $7.65 billion and adjusted EPS of $1.11. Beyond the strong performance, Micron’s forecast for the fiscal 2025 first quarter projected continued growth, with anticipated revenue of $8.7 billion (84% year-over-year increase) and adjusted EPS of $1.74 (83% increase). Management attributed this growth to robust AI data center demand driving sales for its DRAM memory and NAND flash-based storage.
Implications for AI and Semiconductor Sectors
Micron’s solid results provided compelling evidence that demand for AI and associated hardware remains strong. The subsequent increase in stock prices for other semiconductor companies suggests investor confidence in the broader industry’s growth potential.
Each of these companies specializes in unique segments of the semiconductor market expected to benefit from AI adoption:
- Taiwan Semiconductor Manufacturing is the largest third-party chipmaker globally, profiting from high demand for advanced chips.
- ASML Holding builds advanced lithography systems essential for manufacturing high-end semiconductors.
- Indie Semiconductor specializes in processors for automotive applications, including advanced driver-assistance systems and other in-car technologies, while also developing customized AI solutions for carmakers.
The data suggests that the accelerating adoption of AI will continue to boost the fortunes of companies within the semiconductor industry. However, it’s important to note that not all AI stocks present the same investment value. Taiwan Semiconductor and ASML are comparatively inexpensive, trading at 22 and 25 times forward earnings, respectively, while Indie Semiconductor, which is not yet profitable, represents a riskier investment.
Overall, each of these stocks shows promising potential, particularly considering the continuous opportunities within the AI sector.
Disclosure: Danny Vena does not hold positions in any of the mentioned stocks. The Motley Fool owns shares of and recommends ASML and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosed policy.
