Icron Technology (MU) shares surged in Thursday trading, poised to open at an all-time high after the memory-chip maker posted an unexpected second-quarter profit and projected a surge in demand for a new segment of its product lineup over the next few years.
Micron manufactures both NAND and DRAM chips for the memory market, competing against major Asian rivals such as SK Hynix and Samsung.
It is also venturing into the broader artificial intelligence technology field with a new semiconductor designed to support generative AI applications.
Last year, Micron announced a partnership with AI-chip leader Nvidia (NVDA) to embed its high-bandwidth-memory (HBM) chips in the new H200 semiconductors.
According to Micron, the addition of HBM not only enhances performance but also reduces power consumption, a crucial factor in developing AI strategies due to their significant computing requirements.
The surge in demand for HBM is already underway, with sales expected to match its legacy DRAM division as early as 2025.
Micron's Chief Executive Sanjay Mehrotra stated, "Our HBM3E product will be a part of Nvidia's H200 Tensor Core GPUs, and we are making progress on additional platform qualifications with multiple customers." He added, "We are on track to generate several hundred million dollars of revenue from HBM in fiscal 2024 and expect HBM revenues to be accretive to our DRAM and overall gross margins starting in the fiscal third quarter."
The strong demand for HBM enabled Micron to report a surprise fiscal-second-quarter profit of 42 cents a share, significantly surpassing Wall Street's forecast for a loss of 25 cents.
The company also forecasted current-quarter revenue to be around $6.6 billion.
Analysts reacted positively to Micron's performance, with Cantor Fitzgerald analyst C.J. Muse raising his price target on the shares to $135.
CFRA analyst Angelo Zino increased his price target to $100, noting the better pricing environment for Micron's DRAM sales and the upside from High Bandwidth Memory tied to Nvidia's H200.
Micron's profit-margin recovery is on track, with the company expecting an adjusted gross margin of around 26.5% for the current quarter, up from 20.5% in the previous quarter.
Analysts predict that the margin-recovery story will continue into 2025 due to a better product mix and improved pricing.
Overall, analysts are optimistic about Micron's future, with Rosenblatt analyst Hans Mosesmann raising the highest price target on Wall Street to $225, citing the company's strong AI momentum and the potential for the "biggest memory cycle in history."
In premarket trading, Micron shares were up 18%, indicating an opening bell price of $113.56, extending the stock's six-month gain to around 67.25%.