Memory chipmaker stocks are rising as demand continues to rise.
Micron TechnologyOf (MU -0.60%) The stock has been on a more than 160% run since the start of 2023. The semiconductor bear market is winding down, and is poised for the next spurt as industrial growth, demand for high-speed computing and artificial intelligence (AI), thanks Nvidia (NVDA 1.88%)) too, continues to roar.
However, investors became a little more cautious after Micron's third-quarter fiscal 2024 update (for the three months ending May 2024). Stocks retreated slightly from all-time highs. The numbers were solid, though, giving AI chip stocks the green flag to keep rolling and rolling.
Were Micron's finances really that good?
Micron is one of the three primary players (Samsung And SK Hanks the other two in South Korea) in AI memory chipmaking. These days, the investment community has become very aware of a specific memory product called HBM3e (the upgraded version of the third generation of “high-bandwidth memory”).
The HBM3e is built thanks in large part to Nvidia's AI chip systems, with these advanced memory chips built around the Nvidia GPU (a graphics processing unit, or more specifically, in this new age of AI, a fast computing logic chip). There are heaps. Demand for HBM is currently doing a lot of lifting for Micron as it has worked through the overall bear market for semiconductors over the past two years. Revenue rose 82% year-over-year to $6.8 billion, and adjusted net income was $702 million, compared to a net loss of $1.57 billion a year earlier.
Micron still has a long way to go to dig itself out of the bear market hole. However, by fiscal 2025 (which ends in August next year), management says it expects “substantial” new all-time revenue records and “improved” profitability.
This is a significant outlook upgrade given the current state of Micron's financial situation. New record sales at and above the last peak in 2022 indicate significant growth during this AI-fueled cycle.
Data via YCharts.
Micron indicates where Wall Street's money is moving.
Micron's latest update on chip sales is relevant to a much wider audience than just Micron shareholders. In its commentary on HBM products for AI, management said its manufacturing capacity is fully booked for the entire calendar year 2024. And Full calendar year 2025.
That means customers like Nvidia will be buying a lot of HBM from Micron for at least the next year and a half. This is to meet the demands of their own customers — such as tech giants Microsoft, the alphabet, MetaAnd Oracleand a growing list of other companies — in a technology arms race to upgrade existing data centers and build new ones for AI dominance.
To be clear, Micron is often a few steps removed from final end-market system sales. That means any turnaround in big-tech data center construction could be slow, and it could take a few quarters for the eventual shift in demand for memory chips to trickle down and affect Micron's financial outlook. For now, however, the comment about productivity by the end of next year is a solid indication that AI infrastructure spending has a long way to go before it starts to cool.
A word of caution: While these are exciting times for investors in stocks like Micron and Nvidia, that's it How profitable Whether they will be next year remains to be seen. Given that the growth cycle is still pointing upward, many chip stocks are not as “expensive” as they appear on the surface when viewed from the perspective of profit expectations. For next year, Micron stock trades for just 14 times Wall Street analysts' consensus estimate for generally accepted accounting principles (GAAP) earnings per share (EPS), and Nvidia's expected EPS next year. 35 times for
But the growth trend can, and eventually, turn into a recession. This is the way to go with any business involved in manufacturing and selling hardware. Prudence is always a good idea when buying cyclical growth stocks. But for the foreseeable future, Micron's latest update is giving the green light to the AI chip stock race. All-out growth is set to continue for some time.
Randy Zuckerberg, former director of market development and spokeswoman for Facebook and sister of MetaPlatforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an Alphabet executive, is a member of The Motley Fool's board of directors. Nicholas Rossolello And his clients have positions. Alphabet, Metaplatforms, Micron Technology, and Nvidia. The Motley Fool has positions in and recommends Alphabet, MetaPlatforms, Microsoft, Nvidia and Oracle. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a Disclosure Policy.