Micron Is Sold Out of High-Bandwidth Memory Chips — What Does That Mean for Nvidia's AI Dominance?


The most recent semiconductor industry downturn, led by the steep falloff in consumer electronics (PCs and smartphones) spending after the pandemic, has been absolutely brutal on U.S. memory chipmaker Micron Technology (MU 0.33%). However, Micron is back in all-out growth mode, and it just turned a GAAP profit again in its last reported quarter (Q2 fiscal 2024, the three months ended in February 2024). Credit goes to a return of normal PC and smartphone purchasing, but another key factor is Nvidia‘s (NVDA 3.12%) generative artificial intelligence (AI) revolution.

Micron’s return to profitability has big implications for its stock (as well as for memory chip manufacturing equipment and service providers like Lam Research (LRCX -0.47%)). But it also has potentially monumental implications for Nvidia and the already white-hot generative AI infrastructure boom. Here’s what investors need to know.

Micron is fully booked and fresh out of leading-edge memory

As for high-level stuff, Micron reported a 58% year-over-year increase in sales last quarter to $5.82 billion. Its rapid return back to its last peak sales cycle, which occurred in 2022 at the end of the pandemic-induced chip shortage, will continue in fiscal Q3 2024 (which ends in May). Management is predicting revenue of $6.6 billion at the midpoint of guidance, which would equal a 76% year-over-year jump.

That growth is impressive, but note that Micron is still lapping its horribly depressed financial results from the depths of the bear market a year ago.

Data by YCharts.

This is all nevertheless fantastic news for Micron, which finally reported a GAAP net profit again of $793 million (or $476 million on an adjusted basis). The company has a lot to gain as it keeps ramping up manufacturing of HBM3e, the latest iteration of third-generation high-bandwidth memory. HBM3e is used in accelerated computing and AI — like Nvidia’s new systems just announced at its annual GTC event last week.

The market has been going wild over a business that up until just this quarter has been operating deep in the red. But investors were vindicated by this quote from Micron CEO Sanjay Mehrotra: “We are on track to generate several hundred million dollars of revenue from HBM in fiscal 2024 and expect HBM revenues to be accretive to our DRAM and overall gross margins starting in the fiscal third quarter. Our HBM is sold out for calendar 2024, and the overwhelming majority of our 2025 supply has already been allocated.”

In other words, it looks like the good times will keep rolling for at least another year, if not longer.

Does Nvidia’s stock run have legs?

All eyes have been on Nvidia’s historic run, with its shares up well over 500% since the start of 2023. Even after this melt-up, though, the stock trades for 37 times Wall Street analysts’ current-year expectations for earnings per share.

Underpinning this expectation is that Nvidia earnings will double from last year. Just as Micron expects AI computing growth to continue almost unabated through 2025, so do Nvidia investors. The fact that Micron’s HBM manufacturing capacity is almost completely booked out through 2025 is a solid indication of Nvidia’s demand for more high-end memory chips.

However, and this is the $2.3 trillion question (really, that’s Nvidia’s approximate market cap as of this writing), Nvidia’s demand for these HBM chips will depend on its customers continuing to gobble up as many accelerated compute systems it can crank out with partners like Micron.

But the semiconductor manufacturing space is highly collaborative. It costs a great deal of money to design, build, and sell these systems. Nvidia isn’t likely to be booking big orders from Micron if it wasn’t getting advance orders from its big tech data center customers.

To be sure, this party will come to an end someday. But as of right now, it appears Nvidia has plenty of runway ahead of it. Micron as much as said so in its latest earnings update.

Nicholas Rossolillo and his clients have positions in Lam Research, Micron Technology, and Nvidia. The Motley Fool has positions in and recommends Lam Research and Nvidia. The Motley Fool has a disclosure policy.



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