Consumer memory slowing more than AI gaining

• Consumer memory slowing more than AI gaining causing weakness
• HBM sold out for 2025- HBM is most of Capex- NAND near zero
• Big miss on Q1 guide crushes stock on disappointment
• Positive for Nvidia- Negative for Broadcom/Qualcomm

Micron – AI is wonderful & growing out of bounds while consumer sucks

Micron reported in line results of $8.7B in revenues with $1.79 in EPS which met expectations. However, guidance was poor at $7.9B+-$200M and EPS of $1.43+-$0.10.

Compared to street expectations $8.97B and EPS of $1.97, this is a large disappointment dropping the stock by 14% on the day

Dichotomy between AI and everything else grows

AI is nothing short of fantastic, great margins, super growth, fantastic outlook with expectations of quadrupling over the next several years, Micron sold out for all of 2025 (much like Nvidia)

However, consumer facing memory applications such as PCs and mobile phones are weak, and NAND is absolutely trashed with severe cuts in capex and technology increases in an attempt to slow bloated inventories that trash pricing.

So, very simply put its a race between the declining fortunes of consumer memory and the increasing fortunes of AI memory and unfortunately consumer memory is declining faster than AI is increasing as AI memory, HBM is still a relatively small percentage of overall business. Thus, even though as a percentage, AI is growing faster it is an overall smaller percentage of business.

HBM business doubled for Micron in the quarter but that was still far from enough to offset other memory declines expected.

Server was up 46% sequentially while mobile was down 19% sequentially and embedded down 10% sequentially

Weak Auto and China add to woes

On top of general consumer weakness there was weakness in increasing inventories in auto related sales.

China which has been an ongoing issue will worsen as Chinese competitors take more of the low end of the memory market in both NAND and DRAM for the domestic market leaving Micron with a smaller overall share

2025 capex will be $14B +- $500M

Capex was $3B in the quarter with the “vast majority” of spend focused on the winner, HBM and what sounds like near zero dollars on the loser, NAND.

Micron is slowing NAND wafer starts and slowing technology enhancements that add to bit growth to try and reign in bloated inventories that crush prices

Seasonality doesn’t help

Adding to the weakness is the normal seasonal weakness of the Q1 postpartum depression after the Christmas & Holiday season of peak consumer business. Not only does the current holiday season not look so hot but the slowness after the holidays will likely make matters worse.

The Stocks

Frankly, we think Micron’s stock deserves to get a bit trashed as expectations had grown way out of proportion with reality. AI fever had taken over even though we continue to point out that AI is not big enough to offset the weakness in the largest part of the business.

Maybe in a few years’ time if HBM becomes a significant portion it may help more but by that time it will also become more of a commodity.

We think that there is perhaps more of a lesson for collateral stocks.

We would think of a pair trade like going long Nvidia (which is on sale recently) while shorting Broadcom and Qualcomm.

Micron’s report points out that there is zero weakness, only strong, sold outgrowth in AI while consumer and auto related are weaker and likely getting weaker with bloating inventories in the near term.

Our view is that Micron being down 15% to 20% is not unreasonable as reality sets in.

In other collateral concerns, we see less of an impact on the semiconductor equipment stocks as Microns Capex is still strong at $30B just shifted 180 degrees to focus solely on HBM at all costs.

The “tale of two cities” between “the best of times and the worst of times” gets bigger as consumer slows more. We are somewhat surprised that Micron management missed this somewhat obvious shift in sentiment that has been going on for a while.

Unlike in France this disregard of reality only winds up in the guillotine for the stock price.

About Semiconductor Advisors LLC

Semiconductor Advisors is an RIA (a Registered Investment Advisor),
specializing in technology companies with particular emphasis on semiconductor and semiconductor equipment companies.
We have been covering the space longer and been involved with more transactions than any other financial professional in the space.
We provide research, consulting and advisory services on strategic and financial matters to both industry participants as well as investors.
We offer expert, intelligent, balanced research and advice. Our opinions are very direct and honest and offer an unbiased view as compared to other sources.

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