Micron Shares Tumble as Chip Outlook Disappoints

Micron Technology’s latest quarter didn’t go over well, and investors are punishing the stock. Shares of the chipmaker were down 2% in anticipation of the company’s earnings report and proceeded to tumble another 4% once the results were in. Investors were disappointed by Micron’s outlook, not its fiscal Q4 results.

 

Micron Earnings

Micron beat Wall Street estimates with fiscal Q4 EPS of $2.42 on revenue of $8.27 billion, up 37%. Micron’s outlook for Q1 2022 gave investors pause, however, as it paints the picture of weaker demand for its chips that are used in computers and mobile devices. The company’s guidance suggests that the good times, which have lasted for the past year, could be coming to an end for now.

Micron’s fiscal Q1 guidance is for revenue of $7.65 billion, while Wall Street was targeting something closer to $8.5 billion. Micron is aiming for EPS of $2.10 per share on a fully diluted basis, which is also below Street estimates.

Micron’s management team pointed to “supply chain challenges” that its PC customers are currently balancing. Micron’s revenue is diversified beyond just PC demand, but the company is still vulnerable to the ebbs and flows in demand, as its latest outlook has shown.

The sting is that Micron is coming off a record year in which demand for its chips was booming. Times were so good that Micron raised its prices in fiscal 2021, but now the outlook has become clouded and there might not be room to raise prices any further. Investors have not rewarded Micron shares along the way, with the stock down 1.2% year-to-date as investors have fled the volatility that is inherent with the chip sector.

Tech Trouble

It wasn’t just Micron shares that got pummeled on Tuesday, as the broader tech sector became the target amid rising Treasury yields. Oanda senior analyst Edward Moya is quoted by Bloomberg as saying,

“This surge in Treasury yields is kryptonite for the Nasdaq.”

Rising yields are especially threatening to high-growth stocks including technology companies, as it throws a wrench into their future earnings potential based on analyst models.

As for Micron, investors are disappointed about the short-term outlook. On the flip side, the company continues to generate billions in free cash flow, and Micron is a dividend-paying stock, which could help to soften the blow for investors.