Artificial intelligence (AI) is turning out to be a catalyst for multiple companies in the semiconductor industry, from bellwether Nvidia to Advanced Micro Devices and even Intel, which explains why shares of these companies have jumped impressively so far this year.
Micron Technology (MU 2.40%) has now joined the league of chipmakers whose shares are getting a boost from AI adoption. This is evident from the 16% surge in Micron's shares in the past month despite the absence of any company-specific event that could have impacted its stock price. However, a closer look at the developments in the market for AI chips will highlight just why that's the case.
Why has Micron Technology stock started soaring lately?
Micron is known for manufacturing memory chips such as dynamic random access memory (DRAM) and NAND flash storage. This market has witnessed a severe downturn in recent quarters as sales of smartphones and personal computers have declined sharply. This is why Micron's revenue and earnings have declined big time recently.
MU Revenue (TTM) data by YCharts
However, investors seem to be upbeat about Micron's prospects in the coming year thanks to the growing adoption of memory chips in AI servers. Market research firm TrendForce estimates that the use of high-bandwidth memory (HBM) that's deployed in AI servers to speed up performance could increase a solid 105% in 2024. Even better, Mordor Intelligence estimates that the HBM market could increase at an annual pace of almost 26% through 2028.
It is not surprising to see why the HBM market is set to more than double in 2024 and maintain a healthy pace of growth over the long run. Major chipmakers such as Nvidia and AMD are in a race to integrate larger HBM into their AI chips.
Nvidia, for instance, recently announced an update to its widely popular H100 AI processor. The updated H200 AI graphics processing unit (GPU) is equipped with the latest generation of high-bandwidth memory, known as HBM3e, which is reportedly much faster than the previous-generation HBM3 memory.
Nvidia points out that the new H200 processor "delivers 141GB of memory at 4.8 terabytes per second, nearly double the capacity and 2.4x more bandwidth compared with its predecessor, the NVIDIA A100." It is worth noting that this isn't the only chip with a larger memory that Nvidia has recently launched. In August, the semiconductor giant announced the GH200 Grace Hopper Superchip, which is equipped with a massive 282 gigabytes (GB) of HBM3e, an increase of 3.5x over its previous offering.
The good thing for Micron is that it is most likely the supplier of these HBM3e chips to Nvidia. On its September earnings conference call, Micron management said that the company's HBM3e chips are "currently in qualification for NVIDIA compute products, which will drive HBM3E-powered AI solutions."
Management also added that it intends to start the production of this chip in early 2024 and achieve meaningful revenue in the current fiscal year (which started in September this year). Also, when Nvidia announced the H200, it pointed out that systems powered by this chip would be available from the second quarter of 2024.
So, Micron seems all set to ride the growing HBM adoption in AI servers, which explains why the stock could sustain its hot momentum in 2024.
Investors can expect strong gains in 2024
Micron's fiscal 2024 revenue is anticipated to land at almost $21 billion, as the chart below indicates, which would be a 35% jump over the previous fiscal year. It is worth noting that Micron's revenue growth is anticipated to accelerate sharply in the next fiscal year.
MU Revenue Estimates for Current Fiscal Year data by YCharts
Assuming Micron does hit $21 billion in revenue in the current fiscal year, driven by catalysts such as AI, and it can maintain its current price-to-sales ratio of 5.4 after a year, its market cap could increase to $113 billion. That would be a 31% increase from current levels.
But there is a good chance that Micron could deliver even better gains as the market could reward Micron with a higher sales multiple once its growth accelerates. Nvidia, for instance, trades at a whopping 37 times sales thanks to its AI-fueled surge, while AMD trades at almost 9 times sales. As such, investors who haven't bought Micron yet may want to do so before AI sends the stock higher.
