Micron is set to rise by the most since 2011 as AI growth boosts outlook

(Bloomberg) — Micron Technology, the largest U.S. maker of computer memory chips, is on track for its biggest gain in more than 12 years after delivering a surprisingly strong revenue forecast for the current quarter, boosted by demand for artificial intelligence devices.

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The company said in a statement on Wednesday that financial revenues for the third quarter will range between $6.4 billion and $6.8 billion. This compares to analysts' average estimate of $5.99 billion. Micron's earnings will be about 45 cents per share, minus certain items. Analysts expected 24 cents.

Micron and its rivals are beginning to emerge from one of the worst downturns the memory chip industry has ever suffered, driven by weak demand for personal computers and smartphones. But executives are optimistic about the future, as a booming market for artificial intelligence equipment helps chipmakers return to growth and profitability.

“We believe Micron is one of the semiconductor industry's biggest beneficiaries of the multi-year opportunity presented by artificial intelligence,” Sanjay Mehrotra, CEO, said in the statement.

Micron CEO Sanjay Mehrotra.  (Bloomberg)

Micron CEO Sanjay Mehrotra. (Bloomberg)

Shares rose 18% to $113.30 in premarket trading Thursday. If the gains continue, Micron will be poised for its biggest jump since December 22, 2011 and reach an all-time high. It had risen 13% to $96.25 this year as of Wednesday's close.

Mehrotra has promised investors that 2024 will mark a recovery for the industry and that 2025 will see record sales levels. But Micron will need to produce enough ultra-fast memory, which works with Nvidia Corp chips, to help data center operators develop artificial intelligence software.

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AI-related systems use what's called high-bandwidth memory, or HBM. This type of chip is new and less than commodity. This means that companies like Micron can charge a much higher price for it.

Micron earned its first revenue from a form of this memory known as HBM3E last quarter. Micron said the semiconductor is part of Nvidia's graphics chip-based artificial intelligence accelerators. Micron expects “several hundred million” dollars in revenue from HBM products in fiscal 2024. It said the majority of its production of these chips will be fully sold by 2025.

AI programs are created by bombarding programs with information. The process can involve trillions of parameters and is highly memory-intensive. In order to avoid bottlenecks and keep expensive processors fully operational, Micron and its competitors have developed chips that communicate with other components much faster than traditional memory chips.

Nvidia CEO Jensen Huang said earlier this week that HBM was more than just a memory upgrade — it's a technical marvel vital to AI systems. He mentioned Micron as a leader in bringing new technology to the market.

In the second quarter, which ended February 29, Micron's revenue rose 58% to $5.82 billion. The Boise, Idaho-based company had earnings of 42 cents per share, excluding certain items. That compares to estimated sales of $5.35 billion and an expected loss of 24 cents per share.

“Micron has returned to profitability and achieved a positive operating margin a quarter ahead of expectations,” Mehrotra said on a conference call with analysts.

Micron competes with South Korea's Samsung Electronics and SK Hynix in selling chips that provide short-term memory in computers and phones. Micron also manufactures flash memory, which provides long-term storage in those devices.

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Both types of memory follow industry standards, which means that parts from different companies are interchangeable and can be traded like commodities. The downside is that prices can be volatile, and customers can switch from one supplier to another.

Memory chip manufacturers are trying to enter new markets, such as data centers, cars and a growing range of gadgets, making them less dependent on phones and computers. But it has not become diversified enough to offset fluctuations in demand within its core markets, as happened in 2023.

Micron is looking to PC and smartphone makers to return to steady demand. Many of them have reduced demand to draw down existing inventory. Weak demand from these customers pushed chip prices below the cost of production last year.

Earlier on Wednesday, the US Commerce Department announced that it would give Intel $8.5 billion in grants and up to $11 billion in loans to help finance the expansion of its semiconductor factories in the United States. The announcement was the largest disbursement yet from the Chips and Science Act issued by the Biden administration. No major chipmakers have yet received public promises of support.

Micron said it is maintaining its budget for new plant and equipment for fiscal 2024 at $7.5 billion to $8 billion. It will go ahead with projects in China, Japan and India. The proposed U.S. expansions — in New York State and Boise — “require Micron to obtain a combination of sufficient chip grants, investment tax credits, and domestic incentives to address the cost differential compared to overseas expansion,” Mehrotra said.

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