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

(Bloomberg) — Micron Technology Inc., the largest US maker of computer memory chips, is on course for its biggest gain in more than 12 years after giving a surprisingly strong revenue forecast for the current quarter, buoyed by demand for artificial intelligence hardware.

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Fiscal third-quarter revenue will be $6.4 billion to $6.8 billion, the company said in a statement Wednesday. That compares with an average analyst estimate of $5.99 billion. Micron will have earnings of about 45 cents a share, minus certain items. Analysts projected 24 cents.

Micron and its rivals are emerging from one of the worst slumps the memory chip industry has suffered, triggered by weak demand for personal computers and smartphones. But executives are optimistic about the future as the booming market for AI gear helps chipmakers return to growth and profitability.

“We believe Micron is one of the biggest beneficiaries in the semiconductor industry of the multiyear opportunity enabled by AI,” Chief Executive Officer Sanjay Mehrotra said in the statement.

The shares rose 18% to $113.30 in premarket trading on Thursday. If the gains hold, Micron will be set for its biggest jump since Dec. 22, 2011 and hit its highest level on record. They had climbed 13% to $96.25 this year through the close on Wednesday.

Mehrotra has promised investors that 2024 will mark a rebound for the industry and 2025 will see record sales levels. But Micron will need to make enough ultrafast memory, which works with Nvidia Corp. chips to help data center operators develop AI software.

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

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Micron got its first revenue from a form of this memory known as HBM3E in its most recent quarter. The semiconductors are part of Nvidia graphics chip-based AI accelerators, Micron said. And Micron expects “several hundred million” dollars of revenue from HBM products in fiscal 2024. The majority of its production of such chips is sold out for 2025, it said.

AI software is created by bombarding software with information. The process can involve trillions of parameters and is highly reliant on memory. In order to avoid bottlenecks and keep expensive processors working flat-out, 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 that’s vital to AI systems. He mentioned Micron as a leader in bringing the new technology to market.

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

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

Micron competes with South Korea’s Samsung Electronics Co. and SK Hynix Inc. in selling chips that provide short-term memory in computers and phones. Micron also makes flash memory, which provides longer-term storage in those devices.

Both types of memory follow industry standards, meaning 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-chipmakers have been trying to push into new markets, such as data centers, cars and an increasing array of gadgets — making them less dependent on phones and PCs. But they haven’t become diversified enough to offset the swings in demand within their core markets, as they experienced in 2023.

Micron is looking to makers of personal computers and smartphones to return to steady ordering. Many of them had scaled back demand to draw down the inventory they had on hand. Weak ordering from those customers pushed chip prices down below the cost of production last year.

Earlier Wednesday, the US Department of Commerce announced it will award Intel Corp. $8.5 billion in grants and as much as $11 billion in loans to help fund an expansion of its semiconductor factories in the US. The announcement was the biggest disbursement so far from the Biden administration’s Chips and Science Act. No other big chipmakers have so far been publicly promised support.

Micron said it’s maintaining its budget for new plants and equipment for fiscal 2024 at $7.5 billion to $8 billion. It will proceed with projects in China, Japan and India. Proposed US expansions — in New York State and Boise — “require Micron to receive the combination of sufficient Chips grants, investment tax credits, and local incentives to address the cost difference compared to overseas expansion,” Mehrotra said.

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