Shares of Micron Inc. (MU) surged 17% before the close on Thursday after the chipmaker forecast better-than-expected sales for the next quarter.
Micron forecast first-quarter sales of $8.5 billion to $8.9 billion, beating analysts’ expectations of $8.3 billion.
Company executives cited a more favorable pricing environment and strong demand for Micron’s memory chips, which are used in data centers that power artificial intelligence, for the higher guidance.
“The emergence of AI makes memory and storage the most exciting time of my career,” CEO Sanjay Mehrotra said in a conference call with investors on Wednesday afternoon. Mehrotra said the company will enter fiscal 2025 “more competitively positioned than any other company in Micron’s history.”
Executives now expect the market for high-bandwidth memory (HBM) chips used in AI data centers to grow from $5 billion this year to $25 billion in 2025, with rising demand for HBM chips likely to add billions of dollars to the company’s revenue next year.
Analysts at Wedbush, JP Morgan, TD Cowen and Raymond James were encouraged by Micron’s comments about AI demand and a recovery in traditional markets, and reiterated their Outperform ratings on the company’s shares. For example, they noted that demand for Micron’s memory chips from PC and smartphone makers is recovering.
Wedbush’s Matt Bryson said Micron’s first-quarter outlook “very well reflects our belief that overall memory trends are likely to improve materially beginning early next year.”
“Demand for HBM remains strong and Micron appears on track to meet its targets,” Raymond James analysts said.
Micron is the first chipmaker to report quarterly results this fiscal year, and its report will be the first indication of how the industry is doing amid high expectations from Wall Street.
The company reported sales of $7.75 billion for the fourth quarter ended Aug. 29. That was up 93% from a year ago and beat analysts’ recently lowered estimates of $7.66 billion. Adjusted earnings per share of $1.18 also beat the high end of Micron’s guidance and Wall Street’s expectations of $1.11.
Micron’s memory chip business has undergone a resurgence over the past year as big tech companies pour billions of dollars into the semiconductor sector for the hardware that runs AI data centers.
Micron differentiates itself by partnering with industry superpower Nvidia (NVDA) rather than competing with it: Micron supplies memory chips for Nvidia’s much-in-demand GPUs.
The story continues
Micron Technology’s automotive chip manufacturing plant in Manassas, Virginia. (AP Photo/Steve Helber, File) (Associated Press)
Investors have surprisingly high and ever-increasing standards for AI chipmakers, which have often disappointed them in recent months. Micron’s better-than-expected third-quarter profit in late June did little to sway investors, and its fourth-quarter outlook, which fell exactly in line with (rather than surpassing) Wall Street expectations, sent its shares plummeting.
Nvidia’s shares also fell after the company reported quarterly results in late August, as investors expected more from the semiconductor superpower, even though the company’s profits more than doubled and revenue beat expectations.
Nvidia has since recovered, and Micron’s fourth-quarter results boosted the stock after a disappointing few months that saw its shares fall from a high of around $150 in mid-June.
The PHLX Semiconductor Sector Index (^SOX) has started to recover after dropping early in the month as tech stocks rallied in the wake of the Federal Reserve’s (Fed) sharp rate cuts and the People’s Bank of China’s (PBOC) broad-based stimulus package. The index is up about 6% over the past week.
The company also stands to benefit from legislation awaiting President Joe Biden’s signature that would ease environmental requirements for microchip projects funded by the CHIPS and SCIENCE Act. Micron is one of the biggest beneficiaries of CHIPS Act funding, and the Making Chips in America Act, passed by the U.S. House of Representatives on Monday, will allow the company to access funds more quickly for projects in Idaho and New York.
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Laura Bratton is a reporter for Yahoo Finance.
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