The recent downturn in the semiconductor industry, triggered by a sharp drop in spending on consumer electronics (PCs and smartphones) after the pandemic, has been extremely difficult for U.S. memory chip makers. micron technology (NASDAQ:MU). However, Micron is back in full growth mode and just reported another GAAP profit in its last reported quarter (fiscal 2024 second quarter, three months ending February 2024). While regular PC and smartphone purchases are credited back, another important factor is: Nvidia‘s (NASDAQ:NVDA) The generative artificial intelligence (AI) revolution.
Micron’s return to profitability will have a major impact on its stock price (as well as on its memory chip manufacturing equipment and service providers). ram research (NASDAQ:LRCX)). But this could have potentially monumental implications for his Nvidia and the already heated generative AI infrastructure boom. Here’s what investors need to know.
Micron is full and fresh from cutting-edge memory
On the high-level side, Micron reported a 58% year-over-year increase in revenue last quarter to $5.82 billion. The rapid return to the previous peak sales cycle, which occurred in 2022 when the pandemic-induced chip shortage ended, will continue into the third quarter of fiscal 2024 (ending in May). At the midpoint of its guidance, management is projecting revenue of $6.6 billion, representing a 76% year-over-year increase.
While this growth is impressive, it’s worth noting that Micron is still delivering horribly depressed financial results from the depths of the bear market a year ago.
Still, this was great news for Micron, which ended up reporting GAAP net income of $793 million ($476 million on an adjusted basis) again. The company continues to ramp up production of its HBM3e, the latest version of its third-generation high-bandwidth memory, and there’s a lot to gain. HBM3e is used in accelerated computing and AI, as well as his new Nvidia system, which was just announced at last week’s annual GTC event.
The market is in an uproar over a business that had been in the red until just this past quarter. But investors were vindicated by Micron CEO Sanjay Mehrotra’s words: “We expect to generate hundreds of millions of dollars in revenue from HBM in fiscal year 2024, and we expect HBM revenue to be accretive to our DRAM and overall gross margin beginning in fiscal year 3.” Sold out for the calendar year, the overwhelming majority of 2025 supply has already been allocated. ”
In other words, the good times are likely to continue for at least another year, if not longer.
Does Nvidia’s stock price have legs?
Since the beginning of 2023, the stock price has increased by well over 500%, drawing attention to NVIDIA’s historic success. But even after this selloff, the stock still trades at 37 times Wall Street analysts’ earnings per share estimates for this year.
Supporting this prediction is that NVIDIA’s revenue will double from last year. Just as Micron expects his AI computing growth to continue largely unabated through 2025, so do Nvidia investors. The fact that Micron’s HBM manufacturing capacity is almost fully booked until 2025 certainly points to his Nvidia’s demand for higher-end memory chips.
But here’s the $2.3 trillion question (in fact, this is Nvidia’s approximate market cap at the time of this writing). His Nvidia demand for these HBM chips is the Customers continue to consume large quantities of high-speed computing systems that we can develop in collaboration with partners like Micron.
But the semiconductor manufacturing industry has been very supportive. These systems are expensive to design, build, and sell. Nvidia is unlikely to book a large order from Micron unless it has received pre-orders from major high-tech data center customers.
I’m sure this party will come to an end someday. But for now, Nvidia seems to have plenty of runway ahead of it. Micron said so in its latest financial report.
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Nicholas Rossolillo and his clients have held positions at Lam Research, Micron Technology, and Nvidia. The Motley Fool has a position in and recommends Lam Research and his Nvidia. The Motley Fool has a disclosure policy.
Micron sells out of high-bandwidth memory chips — What does it mean for Nvidia’s AI advantage? Originally published by The Motley Fool
