Shares of DRAM and NAND flash giant Micron Technology (MU +9.17%) rocketed to close almost 9% higher on Wednesday, reaching all-time highs.
Micron is one of only a handful of companies with the ability to produce DRAM and NAND flash memory at scale. While that business has been wildly cyclical in the past, it seems that artificial intelligence (AI) data centers, in particular the Stargate project from OpenAI, is leading to skyrocketing demand for memory and storage, leading to a bullish "supercycle."
NASDAQ: MU
Key Data Points
OpenAI makes a massive agreement with Micron's rivals
On Wednesday in South Korea, ChatGPT owner OpenAI announced a sweeping deal with South Korea's Samsung and SK Hynix, which are the only two global companies besides Micron that make both DRAM and NAND flash.
The two large memory makers signed letters of intent to supply OpenAI's Stargate project, a massive AI infrastructure project that could eventually cost up to $500 billion. In addition, the two memory firms will collaborate with OpenAI in building new, "Stargate Korea" data centers, given the heavy use of ChatGPT in South Korea today.
The companies also confirmed the amount of DRAM required will be massive. Samsung and SK will apparently supply OpenAI with undiced wafers, instead of fully packaged and tested HBM memory. This will likely lower costs for OpenAI and is sort of like selling memory "wholesale."
Reportedly, the peak volumes could amount to 900,000 DRAM wafers per month. That would be about 40% of the entire DRAM memory market today!
While the agreement didn't mention Micron, keep in mind that this agreement was signed in South Korea, where Samsung and SK Hynix are national champions. So it doesn't mean Micron is necessarily excluded from Stargate. Moreover, since DRAM is a global three-company oligopoly with commodity-like price fluctuations, accelerating demand for DRAM from one player is likely to lift prices for all -- Micron included.
Micron has also proven its technology leadership in recent years, announcing on its recent earnings call that it was the first memory company to ship the 1y DRAM node to the industry last quarter. So, it should hold its own just fine.
Image source: Getty Images.
Memory supercycle?
The memory industry has traditionally been highly cyclical, as prior years were highly leveraged to low-to-moderate growth end markets of mobile phones, PCs, and traditional servers. However, the advent of artificial intelligence has spurred massive demand for high-bandwidth memory, which requires multiple times the wafer capacity to produce the same amount of bits as traditional DRAM.
So, as equipment has gone to HBM production, that has tightened traditional DRAM markets as well.
It's hard to know how long this upcycle will last, but it appears today's memory bull market could last longer than the traditional two-year memory cycles of the past.
