Micron stock rises despite Q2 earnings miss, CEO signals a turnaround ahead

Yahoo Finance Live anchors Julie Hyman and Brad Smith discuss the rise in stock for Micron following second-quarter earnings.

Video Transcript

BRAD SMITH: Well, Micron posted its biggest quarterly loss on record as a weak market for PCs and smartphones weighs on the company's financials, but Wall Street is optimistic on the memory chipmaker after the company signaled that a turnaround is ahead. A few things that they did point to as we're seeing shares move higher here premarket-- beyond the downturn, they anticipate a return to normalized growth and profitability in line with some of their long-term financial models. And if you're wondering how long term that is, they believe that the memory and storage TAM will grow to a near record in calendar 2025, continue to outpace the growth of the broader semiconductor industry thereafter.

JULIE HYMAN: Yeah, memory chipmakers like Micron are perhaps more exposed than any to these types of inventory cycles and ups and downs. Memory chips are seen as a commodity. There aren't that many companies that make them. It's Micron. It's SK Hynix of South Korea and Samsung, which also does a lot of other stuff besides. And so pretty small number of producers. Big market, obviously, but, again, one that is commoditized. And the company has been trying to sort of smooth out some of the bumps that it sees periodically, not just in this current period.

So Micron, some of the measures that it's taking here in addition to trying to sort of smooth that out, it had announced a 10% workforce reduction. That is now going to 15%. And it's also cutting its spending on new plants and equipment by 40%. So that spending will look like $7 billion this year. So it's pretty aggressively trying to go after these cost reductions, like so many other companies in tech right now.

BRAD SMITH: Yeah, and we were seeing on what they mentioned in terms of what the opportunity for growth or normalization looks like in the future. A lot of the other semiconductor names or names that really not just dabble in the same space but are banking their entire growth models on the entire landscape for the normalized growth and profitability that Micron was talking about, those companies moving higher in concert premarket here.

And I was looking through my notes just to find this one particular because it's going to come down to capacity and how much they're continuing to bring online even more of the production here. They said that they're making good progress towards some of their gamma nodes in 2025. And then for the super nerdy out there, if you were focusing on this as I was, the one alpha and one beta nodes, they're expecting that to provide them with a competitive performance, power cost, density improvements that they're talking about as well.

And so all of this considered in this broader DRAM market. I think for Micron, I think they gave them at least-- or gave the Street at least enough in the future to look forward to to say, we're on track to hit a lot of these targets net net.

JULIE HYMAN: Right. Exactly. There are some skeptics here. Morgan Stanley's got an underweight. I think we saw there are two sell equivalent ratings on the stock. Morgan Stanley is one of them.

And the analyst there saying that they admire the company's execution in a tough environment, and that's what they said in a note. But we see these challenging trough conditions weighing on the stock materially even in the next upturn. So still some challenges ahead according to them, but broadly it looks like the Street is reading this as, OK, things are not going to continue to get worse necessarily from here.

BRAD SMITH: Don't have to write down inventory as much anyway.

JULIE HYMAN: Yes. We'll see. We'll see what ends up happening.