Key Points
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Micron beat Wall Street’s earnings expectations and issued stronger-than-expected guidance.
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Surging demand for AI memory is giving Micron enormous pricing power.
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The near-term outlook looks strong, but investors should remember the memory industry’s boom-and-bust history.
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Micron (NASDAQ:MU) just reported its Q4 numbers, and they look quite good. The memory chipmaker more than quadrupled its revenue year over year, a pretty incredible number, even for a chipmaker essential to the artificial intelligence (AI) boom.
Can Micron keep up this kind of pace? And what should investors expect from the company moving forward?
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Micron beat expectations, and its outlook looks even better
The company managed to exceed Wall Street’s expectations on their top and bottom lines. The street expected earnings of $31.61 per share on 51.07 billion, the company delivered earnings of $33.42 per share on sales of $54.23 billion.
It beat on forward guidance too, setting a target for its current quarter of $38.15 per share on $61.5 billion in sales. Wall Street saw $35.40 per share on $57 billion in sales.
The success of DRAM and HBM
The company’s success is being driven primarily by one category: DRAM, or dynamic random-access memory. DRAM is bundled into specialized high-bandwidth memory, HBM, which has become like gold in the AI industry. DRAM sales jumped 343% year over year and now make up 73% of total sales for Micron.
Micron’s CEO, Sanjay Mehrotra, told investors that the company is doubling down on its golden goose, saying on itsearnings callthat his company has a “strong roadmap for future HBM products,” including what he called the industry’s “first custom HBM implementation” with the chipmaking giant, Nvidia.
Why AI memory has become so lucrative
Memory holds the data an AI processor uses to do its job. And to do it well, it needs to access a lot of that memory extremely fast. That’s where HBM comes in — by stacking memory chips and placing them right alongside the processor, it keeps the AI chip operating at peak capacity.
As a general rule, the more memory AI models have access to, and the more readily they can access it, the more powerful and capable the model. And right now, supply is sorely lacking. There just isn’t enough HBM to meet that demand, and given that there are only three companies that can produce it at scale, Micron has enjoyed enormous pricing power.
The good times should continue — but for how long?
So the question is, will this continue? In the short term, absolutely. It takes a long time to bring new production capacity online, and so long as demand continues, it will be a long time before supply catches up.
Hendi Susanto from Gabelli Funds told CNBC that “at this point, [he has] not heard any negative data points pointing to the memory cycle reversing toward a decline anytime soon for the foreseeable future.” It looks like the good times will indeed continue to roll.
However, long-term investors may have more cause for concern. While this is dynamic doesn’t look like it will shift anytime soon. On a longer horizon, Micron’s success could come back to bite it as its customers look for ways to optimize and reduce the need for physical memory.
And the memory chip market has always operated in a sort of boom or bust fashion. I think there is a very good chance that within a few years, prices will come back to earth.
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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology and Nvidia. The Motley Fool has a disclosure policy.
