Micron (MU, Financial) recently showcased an outstanding performance in its Q2 earnings, surpassing expectations for both earnings per share (EPS) and revenue. Additionally, the company provided an optimistic outlook for Q3 EPS and revenue, igniting a significant rally in its stock. While NVIDIA (NVDA, Financial) remains a leading name in the AI sector, Micron's remarkable beat-and-raise has proven it's a formidable contender in the AI space as well.
The spotlight on Micron's AI endeavors is largely focused on its development and production of high-bandwidth memory (HBM). HBM is a cutting-edge memory chip that not only consumes less power but also is crucial for AI data centers. Unlike traditional DRAM or NAND chips, HBM's complexity and reduced commoditization allow it to command higher prices. Micron has taken a significant step forward in this market with the launch and increased production of its HBM3E chipset, marking a pivotal growth phase that's expected to continue for several years.
One of the challenges Micron faces is meeting the overwhelming demand for its HBM products. The company has already sold out its HBM inventory for CY24 and allocated the majority of its CY25 supply. This demand indicates a strong market position but also highlights supply chain challenges.
Moreover, Micron has overcome the inventory issues that previously affected the PC and smartphone markets. The company anticipates that the supply of both DRAM and NAND will fall short of demand in 2024, improving profit margins. In Q2, Micron's non-GAAP gross margin jumped to 20.0% from 0.8% in Q1, reflecting a significant turnaround to profitability after five quarters of losses.
Despite a healthier PC and smartphone market, Micron is cautious about predicting a boom. It expects PC unit volumes to see a slight increase, while smartphone volumes could grow at a low-to-mid single-digit rate in 2024. Notably, new AI smartphones are expected to require 50% more DRAM content, underscoring the importance of Micron's advancements in memory technology for the AI sector.
In summary, Micron's Q2 earnings report exceeded high expectations, reinforcing its position as a key player in the AI market. While it may not yet rival NVIDIA in AI growth, Micron is proving to be an essential contributor to the sector, indicating more successful quarters may lie ahead.
