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Micron forecast quarterly profit and revenue well above expectations on Wednesday and said its customers had committed US$22 billion to lock in supplies of memory chips, sending its shares surging 12 percent in after-hours trading.
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The forecast - and third-quarter results that beat Wall Street estimates - underscore how AI-driven shortages are forcingMicron's large-scale data center customers to fund capacity, reshaping the memory market.
Micron, a key supplier for Nvidia's NVDA.O AI processors, has benefited from the shortage.
The company, the only US-based manufacturer of high bandwidth memory chips used alongside Nvidia's AI processors, has seen demand for these chips far outstrip its production capacity, allowing the company and rivals SK Hynix 000660.KS and Samsung Electronics 005930.KS to charge a premium for their products.
Hynix is also exploring a US listing, underscoring investor efforts to tap into the AI-driven memory surge.
"We expect tight conditions to persist beyond calendar 2027 as a result of AI-driven demand across all segments coupled with structural supply constraints," Micron CEO Sanjay Mehrotra said in prepared remarks. He added that the company does not have a sense of when memory supply will catch up with increasing demand.
The chipmaker also outlined a business model shift aimed at making demand less cyclical. The US$22 billion in commitments will come from 16 strategic customer agreements Micron has signed, spanning data center, consumer and automotive markets, with take-or-pay commitments, cash deposits and pricing floors designed to lock in supply and protect margins.
Micron also said that remaining performance obligations - a key indicator of future contracted revenue - for the customer agreements it has entered into so far are around US$100 billion.
"The size and scale of the AI build out has been underestimated at every turn and memory will continue to command premium pricing on supply constraints," said Daniel Newman, CEO of tech research firm Futurum Group.
CAN PRICING POWER HOLD?
Micron's stock has surged more than threefold this year, despite a 13 percent plunge on Tuesday as part of a broader selloff, boosting its market value to over US$1 trillion.
The rebound comes after a brutal industry-wide slump in 2023, when excess inventory crushed prices, but some analysts have questioned whether pricing strength can extend beyond AI-driven products into the broader market.
Micron's stock surge on Wednesday after results, along with a jump in Qualcomm QCOM.O shares, boosted late-day gains in Western Digital WDC.O, Sandisk SNDK.O, Seagate Technology STX.O, Arm Holdings ARM.O, Marvell MRVL.O, Broadcom AVGO.O, Applied Materials AMAT.O, ASML ASML.O and other chipmakers, generating over US$400 billion in stock market value.
Jake Behan, head of capital markets at Direxion, however cautioned that any easing in supplies would be bad news forMicron. "The bull case is built on tightness. Once supply starts to creep back, pricing power is the first thing at risk," he said.
Qualcomm also signaled at its investor day earlier on Wednesday that its new AI chips were designed to use cheaper memory, pointing to a potential limit on how much pricing power premium memory can retain over time - a potential counterweight to Micron’s pricing power.
Micron's chief business officer, Sumit Sadana, however, told Reuters that the agreements the company had inked were five-year term take-or-pay agreements that the industry has not done before, underscoring how much demand there was for HBM chips. Sadana also noted that it took years to build new capacity, which promised Micron long-term demand.
INCREASING SPENDING
Micron also said it intends to increase its capital return, while it invests heavily in expanding infrastructure to satisfy soaring demand.
The company expects fourth-quarter capital expenditure of around US$10 billion, while analysts expected US$8.89 billion.
Micron reported third-quarter revenue of US$41.46 billion, flying past estimates of US$35.85 billion. The company reported adjusted profit of US$25.11 per share, compared with estimates of US$20.78 per share.
It expects fourth-quarter adjusted earnings per share of US$31, plus or minus US$1, compared with the estimates of US$25.84 per share.
Reuters
