Micron stock: A bullish reversal pattern and the Nvidia earnings catalyst

Micron stock has slumped sharply in the past few months, falling from the year-to-date high of $1,257 in June to the current $932. This retreat has happened despite its strong performance as the AI boom gains steam. This article explores what to expect as Nvidia publishes its financial results. 

Nvidia earnings to have an impact on Micron

The most important catalyst for Micron shares will be Nvidia’s earnings report, which will provide more color about the state of the AI industry. These results will have an impact on other memory and semiconductor companies. 

Analysts are optimistic about the company, with Raymond James boosting its target to $352, implying a 65% surge from the current level. Other analysts from companies like Rosenblatt Securities, KeyCorp, and Cantor Fitzgerald expect it to jump to $300 and above. 

If Nvidia's earnings come in strong, it will signal that the AI industry remains healthy, a positive read-through for memory names like Micron, SK Hynix, and SanDisk. Weak guidance, on the other hand, would point to headwinds building in the sector. Micron in particular is worth watching closely: as one of Nvidia's top memory suppliers, its stock tends to move in direct response to Nvidia's results.

On the positive side, there are signs that the sector is booming, with all companies releasing strong financial results and guidance. 

Micron earnings growth is accelerating

The most recent financial results showed that Micron’s business is booming. Its recent results showed that its revenue jumped by 74% in the quarter to $41.5 billion. This figure was a 346% increase from what it made in the same period last year. Its gross margins also continued growing.

Management's guidance for the fiscal fourth quarter was among the company's strongest yet, calling for revenue of $50 billion. Analysts, however, are expecting an even higher figure — $50.78 billion, a 348% jump year-over-year. Historically, the company has beaten its own guidance, and if that pattern holds, revenue could come in above $53 billion, pushing the annual total to $133 billion.

Its profits are also soaring. Its cloud memory’s operating margin jumped to 78% from 46% in the same period last year. The core data center margin rose to 83% from 20%, while the automotive one jumped to 75%. This margin will likely continue as HBM prices rise. Indeed, in a recent note, DigiTimes warned that HBM prices may double to $4 per gigabit by next year.

All this is happening at a time when the company is trading at bargain prices. Its forward price-to-earnings ratio has moved to 12.4, much lower than the technology sector median of 34. Also, the company has one of the best rule-of-40 multiples, which has now jumped to 327%.

Micron stock price technical analysis

MU stock chart | Source: TradingView

The daily chart shows that the MU stock price has held steady in the past few days, moving from a low of $737 in July to the current $932. A closer look shows that the stock has stabilized above the 50-day Exponential Moving Average (EMA). 

Most notably, the stock has formed an inverted head-and-shoulders pattern, a common bullish reversal sign in technical analysis. This pattern often leads to strong rebounds over time. 

Therefore, there is a possibility that the stock will bounce back, potentially to the key resistance level of $1,257, which is about 34% from the current level.