Micron Technology (MU +0.27%) is set to report earnings at the end of the month, and it should be another strong indicator that the memory chip shortage is far from over, especially for DRAM. With demand surging and supply constrained, the memory market has been booming, with companies in the industry seeing revenues and gross margins expand.
The memory market is broken down into two types: DRAM and NAND (flash). DRAM is a type of fast-volatile memory that loses all its data when the power is turned off. It's historically been used as a fast, temporary workspace for central processing units (CPUs) in computers and smartphones. However, the driving force behind DRAM's resurgence has been a variant called high-bandwidth memory (HBM) that gets packaged with graphics processing units (GPUs) and other artificial intelligence (AI) chips to reduce latency and optimize performance.
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The other type of memory is NAND, or flash memory. This is a non-volatile form of memory used to store data long-term. It's also used in computers, smartphones, electronic devices, and memory cards. NAND has also seen demand surge, driven by AI data centers needing massive solid-state drives (SSDs) to store training data.
Pricing drives growth
Micron is one of the big three DRAM makers, along with Korean companies SK Hynix and Samsung. Last quarter, it derived 76% of its revenue from DRAM and most of the rest from NAND. Revenue for both types of memory skyrocketed in its fiscal Q3. DRAM revenue went from $7.1 billion a year ago and $18.8 billion in fiscal Q2 to $31.3 billion, while NAND revenue climbed from $2.2 billion a year earlier and $5 billion the prior quarter to $9.9 billion.
The growth for both was largely driven by price due to industry shortages. Its DRAM volumes rose in the low single digits sequentially, while its average selling price (ASP) increased in the low 60% range quarter over quarter. NAND volumes rose in the mid-single-digit range, while prices rose in the mid-80% range.
All signs continue to point to a similar dynamic when Micron reports its fiscal Q4 results on Sept. 30. TrendForce recently estimated that Micron's calendar Q2 DRAM revenue soared 65.5% sequentially to $36 billion. That number doesn't fully align with its fiscal Q4, which ended in August, but it shows the incredible price increases the industry and the company are seeing. Ironically, Micron is benefiting from having a smaller mix of HBM, as ASP growth for this high-end memory has actually been more modest.
Meanwhile, both DRAM and NAND prices hit record highs in August. According to DRAMeXchange, which is owned by Trendforce, the average price for ordinary DRAM used in PCs climbed more than 4% month over month to $25 in August. Meanwhile, ordinary NAND prices used in memory cards increased by 1.4% month over month to $30.10 in August. Trendforce expects PC DRAM prices to climb between 18% and 23% sequentially in Q3 and for NAND prices to also continue to climb.
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All eyes on Micron's guidance
Micron has been one of the best-performing AI stocks this year, and it assuredly will once again turn in a blockbuster quarterly earnings report. However, all eyes are going to be more on its guidance and commentary about the future than its actual results. Memory prices can't continue to rise at the breakneck pace they have been forever, but they are likely to remain elevated.
Rival SK Hynix has said the supply-demand imbalance for DRAM is only going to get worse in 2027, and it doesn't expect the market to become balanced until 2030 at the earliest. The spending on AI infrastructure and factors limiting DRAM supply -- like competition with chip companies for new EUV machines and HBM requiring three times the wafer capacity of ordinary DRAM -- back this up. Meanwhile, flash memory player Sandisk said last month at its analyst day that it expects modest sequential NAND price increases throughout the year in fiscal 2027.
As such, I'd expect pretty bullish commentary from Micron about next fiscal year, and given this and its low valuation (forward P/E of 6 times fiscal 2027 estimates), the stock looks attractive ahead of its report.
