After the market close yesterday, $Micron Technology(MU)$ , the memory chip giant, announced its Q2 results for fiscal year 2024. The performance exceeded expectations, and the stock price rose 18.18% after hours:
Specifically, Micron revenue was $5.82 billion in Q2, a year-on-year surge of 57.7%, significantly exceeding analysts' expectations of $5.35 billion, also higher than the management's guidance of $55 billion!
Here are the THREE reasons behind this revenue surge:
The demand is heating up! Inventory levels in the PC, phone, auto, and industrial markets are back to normal. The management predicts a slight increase in PC and phone shipments this year, reversing last year's decline.
AI is booming, driving a surge in datacenter business. With the mass production of HBM3E, it's crowding out traditional DRAM production, pushing up storage prices.
In order to cope with the semiconductor downturn, the industry has cut supply, leading to a rebound in prices.
Across all segments, Micron saw growth of over 28% in both mobile and memory or embedded businesses in the second quarter:
But the real highlight is the price hike! Micron's DRAM shipments grew by only a low single digit quarter-on-quarter, but prices jumped nearly 20%. NAND prices rose even more, up over 30%!
Micron's memory products are the most cyclical in semiconductors, and their earnings are highly sensitive to price movements. When there's excess capacity, players in the industry often shut down production to raise prices. And with the recovery in demand, especially with the AI boom, the supply of memory products is in even shorter supply.
As a result, Micron's profitability skyrocketed in Q2, with a gross margin of 18.5%, far exceeding analysts' expectations of 12%.
But the market is even more excited about Micron's AI business, specifically its new HBM3E product. HBM stands for High Bandwidth Memory, which stacks DRAM layers like LEGO blocks and encapsulates them using advanced packaging techniques to increase density while maintaining or even reducing size for better storage efficiency. And HBM3E is the fastest and highest-capacity HBM in the industry, driving generative AI innovations and serving as a must-have component for $NVIDIA Corp(NVDA)$ 's AI GPUs!
The management expects HBM3E to generate hundreds of millions of dollars in revenue in 2024 and to contribute positively to Micron's DRAM business and overall gross margin from Q3 onwards.
Micron CEO Sanjay Mehrotra said that all of this year's HBM capacity is already sold out, and most of 2025's capacity is booked. He also expects supply in the DRAM and NAND industries to lag behind demand in 2024!
This super-boom cycle is giving Micron's earnings wings! The company predicts revenue of around $66 billion in Q3, a whopping 75.9% jump year-over-year. It also expects to hit record highs in fiscal 2025!
Gross margins are set to rise even further, reaching 25.5%, although that's still below the 47% level during the previous semiconductor boom.
The management claims that AI will transform businesses and every aspect of life, and Micron is in the early stages of years of growth!
In addition to AI servers, AI phones also have huge potential. Compared to regular phones, AI phones will have 50% to 100% more DRAM. Two AI phones already launched globally, like the $Samsung Electronics Co., Ltd.(SSNLF)$ Galaxy S24 and the Honor Magic 6 Pro, are using Micron's products.
An unprecedented boom cycle is descending upon Micron! And looking at valuations, Micron's price-to-book ratio is still below the previous bull market. Considering the stronger profitability and growth of HBM3E, there's still upside potential for Micron's valuation.
Micron's earnings report typically leads other semiconductor companies by a month, and its better-than-expected results have also lifted the semiconductor sector. After the bell yesterday, $Taiwan Semiconductor Manufacturing(TSM)$ rose 2.38%, $ASML Holding NV(ASML)$ gained 1.45%, and $Applied Materials(AMAT)$ jumped 2.2%.
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