Investing.com -- Bank of America (BofA) downgraded Micron Technology (NASDAQ:MU) shares to Neutral from Buy, citing a weaker-than-expected gross margin (GM) outlook for the second and third fiscal quarters.

The chipmaker's shares fell more than 12% in premarket trading Thursday, as investors reacted to a disappointing Q2 guidance a day earlier. Micron said it expects second-quarter sales to be around $7.9 billion, below both BofA's estimate of $8.3 billion and the consensus of $9 billion.

Moreover, the projected Q2 GM of 38.5% falls short of BofA's 40% expectation and the consensus of 41%.

"Data center and HBM trends remain strong but weakness in PC and phone markets are putting downward pressure on memory pricing, especially in NAND," BofA analysts led by Vivek Arya commented.

The company expects NAND pricing headwinds to persist further in the third quarter.

Despite positive views on Micron's position in the high-bandwidth memory (HBM) and AI market, BofA has revised its fiscal year 2025/2026 pro forma earnings per share (EPS) down by 5% and 11% to $6.80 and $8.78, respectively.

It also trimmed the price target on the stock to $110 from $125.

"Historically the stock has struggled to outperform when GM expansion has remained muted, leading to our stock downgrade to Neutral from Buy, even though we still feel positive about MU's position in the HBM/AI market where TAM was taken up +20% for CY25 to $30bn."

Among the report's positives, BofA highlighted Micron's strong trends in the data center and HBM sectors but pointed out the negative impact of weakness in the PC and phone markets on memory pricing, particularly NAND.

Still, the bank sees potential for a recovery in the PC and phone markets in the second half of calendar year 2025, which together account for a significant portion of DRAM and NAND bit demand.

Analysts also mentioned risks such as elevated inventory levels in PC and phones, which are expected to pressure pricing through the first half of calendar year 2025. Micron plans to underload NAND in the second and third fiscal quarters to balance supply and demand.

Furthermore, the capital expenditure (capex) guide for fiscal year 2025 has been increased to approximately 40% of sales, up from 35%, to support HBM expansion, and the tax rate is anticipated to rise to the high-teens for fiscal years 2026/2027.

Micron downgraded at BofA on gross margin, pricing headwinds

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