Surprise Profit and Strong AI Demand Propel Micron's Shares

Surprise Profit and Strong AI Demand Propel Micron’s Shares: High Bandwidth Memory Chips in High Demand; 2024 Supply Already Sold Out

In a surprising turn of events, chipmaker Micron Technology has forecasted third-quarter revenue above estimates and posted a surprise second-quarter profit. This growth can be attributed to the rapid adoption of artificial intelligence (AI) technology by businesses. Micron’s shares have soared 13.4% in extended trading, continuing an upward trend of over 60% in the past year.

One major driving force behind Micron’s success is the demand for high bandwidth memory (HBM) chips used in the development of complex AI applications. Micron’s CEO, Sanjay Mehrotra, revealed that the company’s HBM was sold out for 2024, with a majority of the 2025 supply already allocated. This high demand for HBM chips is a result of tech companies and other businesses seeking to incorporate generative AI into their products and services, solidifying Micron’s position in the market.

In a strategic move, AI chip frontrunner Nvidia has chosen to use Micron’s latest HBM 3E chips in its next-generation H200 graphic processing units (GPUs). This decision gives Micron an advantage over its South Korean competitor SK Hynix, which was previously the sole supplier of HBM chips to Nvidia. Analysts expect Micron’s share of the high-margin HBM market to continue growing throughout the year.

Micron’s upbeat forecast has also had a positive impact on its peers in the industry. Shares of fellow chipmaker Western Digital rose 4.6% in extended trade following Micron’s report.

Micron’s CEO, Sanjay Mehrotra, stated that HBM revenues are expected to contribute to the company’s gross margins in the third quarter. He also reiterated the company’s goal to generate several hundred million dollars of revenue from advanced chips in fiscal 2024.

The company’s adjusted gross margin for the third quarter is expected to be 26.5%, plus or minus 1.5%, compared to market estimates of 20.8%. Micron has forecasted revenue of $6.60 billion, plus or minus $200 million, for the current quarter, exceeding estimates of $6.03 billion.

Micron’s product offerings include flash memory chips for data storage and dynamic random access memory (DRAM) for data centers, personal computers, smartphones, and other computing devices. Mehrotra mentioned that Micron’s bit supply growth in fiscal 2024 is lagging behind demand growth for both DRAM and NAND.

Additionally, pricing for memory chips has been on the rise after hitting some of its lowest levels due to a pandemic-led buying spree that created a supply glut. Mehrotra anticipates further price increases in DRAM and NAND throughout 2024.

Micron reported second-quarter revenue of $5.82 billion, surpassing estimates of $5.35 billion.

The strong demand for Micron’s HBM chips, driven by the increasing use of AI technology, has fueled the company’s surprising profit and boosted investor confidence. With their HBM supply for 2024 already sold out and a majority of the 2025 supply allocated, Micron is poised for continued growth in the high-margin HBM market. As the AI revolution continues to unfold, Micron remains at the forefront, providing essential components for cutting-edge AI applications.