Micron investors will have to wait for 2025 for a bigger AI payoff

By Therese Poletti

Amid a forecast that was just on target, some may be concerned by set contracts for HBM chips

Micron Technology Inc. investors got a dose of reality Wednesday when it comes to AI expectations.

While the memory-chip maker reported stronger-than-expected financial results for the fiscal third quarter, Micron's (MU) outlook for the fourth quarter was only in-line with current expectations. Shares of Micron, which has been seen as one of the AI-beneficiary stocks in the past year, tumbled nearly 8% in after-hours trading. While the stock has lost some momentum in the past week, it remains up about 67% year to date.

Investors have had their hopes pinned to the need for more memory to run AI applications on everything from the data center to the PC. Micron's new high-bandwidth memory (HBM) chips, which are designed to help speed up data-center processing, are ramping up in volume.

Micron executives said the company was sold out of its HBM chips for calendar 2024. In the fiscal third quarter, Micron Chief Executive Sanjay Mehrotra said the company sold $100 million of its HBM3E chips, and that it is focused on "several hundred million" in revenue in fiscal 2024 and "multiple billions" for fiscal 2025.

For 2025, executives said that they have already signed pricing contracts with customers for the "overwhelming majority" of its supply. One Wall Street analyst asked about the rationale for signing contracts with customers that locked in prices for a product that's in great demand, in an environment of rising prices.

"The long-term contracts really help us and customers get closer, not only with respect to supply or pricing discussions, as may be relevant to our various customer contracts, but also with respect to the technology roadmap," Mehrotra said. He pointed out the company's forecast for strong revenue growth in fiscal 2025 and improved profits.

For fiscal 2025, Micron would only forecast "record revenue and significantly improved profitability," while adding that it was not really providing a forecast. It also said its capital expenditures in 2025 will rise to about mid-30% of its revenue, to build and support more facilities for HBM testing, assembly and fabrication.

Many analysts had expected Micron to beat and raise their forecasts for the fiscal fourth quarter and the next fiscal year. But semiconductors often roll out slower than expected, and HBM chips were still described as in the ramping phase. Analysts have also been counting on big price gains as the memory industry heads into a potentially strong demand cycle. While Micron said it is in a strong pricing environment, its future contracts with some customers for HBM chips could potentially impact its upside.

-Therese Poletti

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06-28-24 0555ET

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