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Micron Technology profits from AI boom, forecasts revenue surge and stock soars!

Micron Technology profits from AI boom

Micron Technology, a prominent memory chip manufacturer, has effectively utilized the rapid increase in artificial intelligence adoption to predict higher-than-expected revenue for its third quarter. Additionally, the company surprisingly reported a profit for this quarter. This news led to a significant surge in its stock value, with a more than 16% increase in extended trading. This jump adds to an already impressive 60% rise in the stock over the previous year.

Currently, Micron's stock is valued at around $110. If this price holds, it will mark the highest closing price in the company's history, demonstrating the market's positive response to Micron's performance and future prospects.

Micron's exceptional financial report and revenue forecast highlight a growing demand for advanced memory chips and semiconductors. This surge is largely fueled by significant investments from major technology companies in generative AI technologies. As a result of this demand, Micron's high bandwidth memory (HBM) chips, which are essential for the development of sophisticated AI applications, have been completely pre-ordered for 2024. Furthermore, a considerable portion of the supply for 2025 has already been allocated. CEO Sanjay Mehrotra's statement emphasizes the high demand and market confidence in Micron's HBM chips, reflecting the company's strong position in the semiconductor industry.

Micron's HBM chips have gained attention from Nvidia, a leading company in the AI chip sector. Nvidia has chosen to use Micron's latest HBM 3E chips for its forthcoming H200 graphics processing units (GPUs). This partnership is notable because, until now, SK Hynix, a South Korean firm, had been the exclusive supplier of HBM chips to Nvidia. The selection of Micron as a supplier for these advanced chips by Nvidia signifies a major shift in the industry and highlights Micron's technological advancements and competitive edge in the market.

Sumit Sadana, Micron's chief business officer, has disclosed that besides their existing agreements, the company has acquired new clients for its HBM products, which they plan to announce soon as reported by Reuters. This development indicates Micron's expanding customer base and its ability to attract new business, reflecting the growing market demand for its high-performance memory products. The anticipation of new partnerships and customer announcements further strengthens the market's confidence in Micron's business strategy and its role in the evolving semiconductor market.

Breaking a streak of five consecutive quarters of losses, Micron reported an adjusted profit per share in its latest quarterly report. This return to profitability marks a significant turnaround for the company, indicating effective management and adaptation to market changes. Analysts have projected an increase in Micron's market share in the high-margin HBM sector throughout the current year, signaling confidence in the company's strategic positioning and its products' competitive advantage in the semiconductor market.

Micron's product portfolio is diverse, catering to various sectors of the memory chip market. The company manufactures flash memory chips, which are predominantly used for data storage purposes. Additionally, it produces dynamic random access memory (DRAM) chips, designed for a range of applications including data centers, personal computers, smartphones, and other computing devices. This diversity in product offerings allows Micron to tap into different market segments and maintain a robust presence in the global memory chip industry.

Bob O'Donnell, a leading analyst at Technalysis Research, has commented on Micron's impressive earnings and projections, suggesting that the momentum generated by generative AI technologies is spurring significant growth in the market for DRAM and HBM suppliers. O'Donnell's analysis points to a broader industry trend where advancements in AI are driving demand for high-performance memory solutions, benefiting companies like Micron that are well-positioned in these segments.

As a leading player in the chipmaking industry, Micron's financial results are closely monitored as they serve as an indicator of the broader demand for various types of semiconductor chips. Micron's optimistic forecast not only reflects its own growth but also influences the market perception of the semiconductor industry as a whole. Following Micron's positive report, shares of Western Digital, a peer in the industry, also experienced a rise in value (up 4.6% in extended trading), demonstrating the ripple effect of Micron's performance on the sector.

High bandwidth memory (HBM) revenues are expected to significantly contribute to Micron's gross margins in the coming third quarter. This projection was reaffirmed by CEO Mehrotra, who also emphasized the company's aim to generate a substantial portion of its total sales from these advanced chips in fiscal 2024. The focus on HBM chips aligns with the increasing demand for high-performance computing and AI applications, positioning Micron to capitalize on these growing market segments.

For the upcoming third quarter, Micron forecasts an adjusted gross margin of around 26.5%, which is notably higher than the market's estimated average of 20.8%. This projection demonstrates the company's confidence in its operational efficiency and its ability to maintain profitability in a competitive market. Moreover, Micron expects to achieve a revenue of approximately $6.60 billion, with a possible variation of $200 million, for the current quarter.

This estimate substantially exceeds the market expectation of $6.03 billion, according to LSEG data. These forecasts reflect Micron's positive outlook and suggest strong market demand for its products, indicating robust growth and financial health for the company.

Micron's report of an adjusted profit of 42 cents per share for the second quarter was a significant turnaround, especially when analysts had predicted a loss of 25 cents per share. This unexpected profitability signals the company's resilience and ability to navigate market challenges effectively. CEO Sanjay Mehrotra's statement about the company's supply growth in DRAM and NAND memory being lower than the demand growth for fiscal 2024 implies a strategic approach to managing supply to maximize profitability and meet market demand efficiently.

Furthermore, Mehrotra noted that there is an improvement in pricing across all memory and storage end markets. He anticipates that the prices for DRAM and NAND will continue to rise throughout 2024. This trend suggests a recovery in the memory chip market, particularly after a period of low pricing levels caused by an oversupply during the pandemic-led buying surge. The expected increase in prices is likely to bolster Micron's revenues and profitability in the coming periods, providing a favorable business environment for the company.

The rebound in memory chip pricing, following a period of historically low levels due to a supply glut caused by pandemic-driven demand, is a significant development for the industry. This turnaround is especially beneficial for companies like Micron, which had to navigate through challenging market conditions. Micron's reported revenue of $5.82 billion for the second quarter, surpassing the estimated $5.35 billion, is indicative of the improving market conditions and the company's strong market positioning to take advantage of these changes. This performance underscores Micron's resilience and strategic agility in responding to market dynamics, setting a positive tone for its future growth and stability in the semiconductor sector.



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