When it comes to artificial intelligence (AI) chips, Nvidia (NVDA 1.53%) has long been the king with its graphics processing units (GPUs). These powerful chips are used to train large language models (LLMs) and run AI inference. However, to perform at their best, these chips need something called high-bandwidth memory (HBM).
HBM is a specialized form of DRAM (dynamic random access memory) that can help GPUs store data while moving it faster and using less space through a process called 3D stacking. Given the importance of HBM in helping improve the performance of AI chips, demand for HBM, not surprisingly, has been through the roof. At the same time, HBM requires three to four times the wafer capacity of run-of-the-mill DRAM, which is creating a supply shortage throughout the DRAM industry. This is leading to prices for DRAM soaring.
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Micron: A DRAM leader
One of the companies best positioned to take advantage of this market dynamic is Micron Technology (MU 3.21%). Micron is a DRAM leader and also participates in the NAND (flash memory) market, which is also seeing supply shortages and soaring prices. DRAM currently makes up around 80% of its revenue and NAND 20%.
The current environment is leading the company to see both surging revenue growth and huge margin expansion. For its fiscal first quarter, it saw its revenue jump 57%, and its adjusted EPS soar nearly 2.7 times to $4.78, as its adjusted gross margin surged to 56.8% from 39.5% a year earlier.
NASDAQ: MU
Key Data Points
Micron sees the HBM market growing at a 40% annual clip through 2028, reaching $100 billion. Given the demand it is seeing, it raised its capital expenditure (capex) budget for the year from $18 billion to $20 billion, and it plans to begin construction of a new fab (chip manufacturing facility) in New York early this year. It also expects a new Idaho fab to come online sooner than expected in 2027 and will start building a second fab in the state this year.
The current supply/demand environment for memory should continue be a huge growth driver for Micron both this year and beyond. AI chip growth is only increasing, and with it, the need for more HBM. The company's current supply is already booked out for this year, and it should benefit from rising prices. Meanwhile, it's been generating strong free cash flow, which has allowed it to become net cash positive on its balance sheet.
While Micron doesn't have the moat of Nvidia, the current market dynamics set it up to outperform in 2026.
