As the semiconductor industry continues to face a downturn, can Micron Technology's new quarterly financial report revive investors' confidence in the entire sector?

Micron is set to release its financial results for the fourth quarter of the fiscal year 2024, which ended in August, after the US stock market closes on Wednesday. Wall Street expects Micron to achieve revenue of $7.65 billion in the fourth fiscal quarter, a year-on-year increase of 90.8%, with a profit of 82 cents per share, compared to a loss of $1.31 per share in the same period last year. The adjusted earnings per share for the fourth quarter are expected to be $1.11.

Analysts predict that revenue from Micron's HBM chips (high-bandwidth memory chips) used for AI data processing will see strong growth.

Micron may also indicate that demand for AI chips remains robust, but demand for chips in other markets such as personal computers and smartphones remains sluggish. Several other chip manufacturers have expressed similar views.

Looking back at the third-quarter report released in June, Micron's performance exceeded expectations across the board, but the company's guidance for the next fiscal quarter failed to meet Wall Street's "ultra-high expectations." Moreover, the production capacity of HBM chips was limited. Since then, Micron's stock price has been "falling continuously," and it has fallen nearly 40% from its June peak, underperforming other chip giants.

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This time, can Micron present a report that satisfies Wall Street? Before the US stock market opens on Wednesday, Micron's stock price rose slightly by 0.6%.

Victims of high expectations, beneficiaries of low expectations

In the view of some analysts, Micron's current stock price is already attractive enough.

"Last quarter, Micron Technology became a victim of high expectations, but since then, the stock price has fallen sharply, which means it may now become a beneficiary of low expectations," said Christian Fromhertz, CEO of Tribeca Trade Group. "It must send a positive signal to break through the resistance above, but it seems that people believe it is worth a try at the current level."Fromhertz stated that if the new quarter performs positively, Micron's stock price could once again surpass the $100 mark, and may even surge above the 200-day moving average of $105. However, he also warned that a drop below the recent support level of around $86 would be a bearish signal.

It is worth mentioning that bullish sentiment in the options market is strengthening.

The ratio of Micron's put options to call options is only half of what it was a year ago, with recent bullish positions particularly outnumbering bearish positions. Among them, there is a significant holding of $100 call options, and even larger positions in $95 and $155 call options.

Citi maintains a cautious stance. Analyst Christopher Danely from the institution said in a report that DRAM memory chip prices will only reverse the downward trend in the next three to six months, and before that, Micron's stock price will remain weak.

Danely gave Micron a "buy" rating (shared by over 90% of analysts), but he believes that Micron's popularity in the market will remain weak in the short term.

In the long term, there is still room for Micron's stock price to rise. According to data compiled by Bloomberg, the expected increase in Micron's stock price over the next 12 months is more than 50%, which is the highest expected return among chip manufacturers to date.

In addition, Micron's expected price-to-earnings ratio is about 10 times, making it the cheapest component stock in the Philadelphia Stock Exchange Semiconductor Index based on this metric. In comparison, Nvidia's price-to-earnings ratio is over 32. ARM has the highest price-to-earnings ratio, close to 80.

Can Micron become an industry catalyst?

Although AI is seen as a favorable factor for strong performance growth, Micron's other businesses, especially personal computer and smartphone chip businesses, have not yet emerged from the unfavorable situation of weak market demand.Morgan Stanley's previous research report pointed out that the memory chip industry is being affected by oversupply and falling prices, especially with more competitors entering the DRAM market, leading to intense competition and a downward cycle for the industry.

In addition, Micron's HBM chip production capacity remains limited. In June of this year, Micron Technology stated that HBM memory chips for 2024-25 have already been sold out.

Analyst Karl Ackerman wrote in the report: "Although some investors correctly predicted the recent performance risks of (Micron), we believe that by 2025, Micron's performance will still lag behind AI peers." His target price of $67 is the lowest on Wall Street.

The key question is whether Micron's valuation fully reflects the challenges it faces.

Synovus Trust Senior Portfolio Manager Daniel Morgan is optimistic, believing that Micron's performance could become a catalyst for the entire industry.

Morgan said: "The worst is over, and the AI narrative creates the potential for outperformance in the next few quarters. If Micron can confirm that there is substance behind this excitement, it will boost the entire AI industry. This is what the market is eager for."