(Bloomberg) – Micron Technology, the largest U.S. computer memory chip maker, soared in late trading after reporting unexpectedly strong earnings guidance for the current quarter, buoyed by demand for artificial intelligence hardware.
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The company said in a statement Wednesday that third-quarter revenue will be between $6.4 billion and $6.8 billion. This compares with the average analyst estimate of $5.99 billion. Micron’s earnings, excluding certain items, were about 45 cents per share. Analysts had expected 24 cents.
Micron and its rivals are emerging from the worst downturn the memory chip industry has experienced, triggered by weak demand for personal computers and smartphones. But executives are optimistic about the future, as a booming AI equipment market is helping chipmakers grow and return to profitability.
“We believe Micron is one of the semiconductor industry’s biggest beneficiaries of the multi-year opportunities enabled by AI,” CEO Sanjay Mehrotra said in a statement.
Shares rose 15% in late trading after the earnings announcement. It rose 13% to $96.25 by the end of the year. Tech companies such as Western Digital also profited from after-hours trading.
Mehrotra assured investors that the industry is expected to recover in 2024 and record sales in 2025. But Micron needs to produce enough ultra-fast memory to work with Nvidia’s chips to help data center operators develop AI software.
AI-related systems use something called High Bandwidth Memory (HBM). This type of chip is new and not very common. That means companies like Micron can charge much higher prices.
Micron made its first profit from this form of memory, known as HBM3E, in the most recent quarter. Micron said the semiconductors are part of an AI accelerator based on Nvidia graphics chips. And Micron expects to generate “hundreds of millions” of dollars in revenue from HBM products in fiscal 2024. The company says most of its production of such chips will be sold out in 2025.
AI software is created by bombarding software with information. This process can contain trillions of parameters and is highly memory dependent. To avoid bottlenecks and keep expensive processors running at full capacity, 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 is not just a memory upgrade, but an essential technological marvel for AI systems. He cited Micron as a leader in bringing new technology to market.
Micron’s revenue for the second quarter ended Feb. 29 increased 58% to $5.82 billion. The Boise, Idaho-based company had profit of 42 cents per share, excluding certain items. By comparison, he expects revenue of $5.35 billion and loss per share of 24 cents.
“Micron has returned to profitability and delivered positive operating margins for the quarter, exceeding 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 for computers and cell phones. Micron also makes flash memory that provides long-term storage for these devices.
Both types of memory follow industry standards. This means parts from different companies are interchangeable and can be traded like goods. The disadvantage is that prices can fluctuate and customers may switch from one supplier to another.
Memory chip makers are looking to reduce their dependence on mobile phones and PCs and expand into new markets such as data centers, automobiles and a growing number of gadgets. However, they are not diversified enough to offset fluctuations in demand within their core markets, as experienced in 2023.
Micron is hoping for a return to stable orders from PC and smartphone makers. Many have scaled back demand to unload inventory on hand. As orders from these customers slumped, chip prices fell below production costs last year.
Earlier Wednesday, the U.S. Department of Commerce announced it would give Intel $8.5 billion in grants and up to $11 billion in loans to help finance the expansion of semiconductor factories in the United States. The announcement marks the largest spending to date from the Biden administration’s Chips and Science Act. So far, other major chipmakers have not publicly committed to support.
Micron said it will maintain its budget for new plant and equipment at $7.5 billion to $8 billion for fiscal year 2024. Proceeding with projects in China, Japan, and India. The proposed U.S. expansions in New York state and Boise “require Micron to receive a combination of adequate chip subsidies, investment tax credits, and local incentives to address cost differentials with overseas expansions.” said Mehrotra.
(Updates with reaction from other stocks in 5th paragraph.)
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