Soaring memory chip demand helps Micron quadruple its revenue and crush expectations again

Memory chip maker Micron Technology Inc. more than quadrupled its revenue growth in the most recent quarter as it continued to benefit from surging demand linked to the artificial intelligence industry.

The company reported third-quarter earnings before certain costs such as stock compensation of $25.11 per share, crushing Wall Street’s target of $20.78 by a wide margin. Revenue for the period surged to $41.46 billion, up from just $9.3 billion in the year-ago quarter and well above the Street’s target of $35.84 billion.

Micron said its gross margin, which is its profit after accounting for the cost of goods sold, jumped to an incredible 84.9%, up from 74.9% in the previous quarter and just 39% one year earlier. All told, net income came to $28.24 billion at the end of the quarter, up from just $1.89 billion in the same period one year ago.

Micron’s gross margin is now the highest percentage among all major publicly traded U.S. tech companies, surpassing the previous leader Meta Platforms Inc., which recorded a gross margin of 81.9% in its latest quarter. In comparison, the AI chipmaker Nvidia Corp. only has a gross margin of 75%. It represents a remarkable increase in pricing power for a company that has long been seen as a manufacturer of a commodity product.

For the current quarter, Micron said it’s aiming for revenue of around $50 billion, meaning it doesn’t expect to stop growing anytime soon. Wall Street has forecast sales of just $43.58 billion.

The price of memory chips has skyrocketed in the last couple of years because AI chips are eating up all of the production capacity of a relatively small number of memory makers. Micron, along with Samsung Electronics Co. Ltd. and SK Hynix Inc., is one of the big three memory chip manufacturers, and none of them have been able to keep up with demand. With data center operators buying up all of the memory they can, prices are also increasing for the memory products used in personal computers, smartphones and other devices.

Chief Executive Sanjay Mehrotra (pictured) told analysts on a conference call that customers are recognizing that the supply shortages in memory and storage are going to take a “considerable time to improve,” even if he does believe that the supply situation will start to look better in 2028.

Demand for memory has fueled a stunning rise for Micron, which is now one of the world’s most valuable publicly traded companies. Its stock has risen by an extraordinary 700% in the last year, while its market capitalization last month surged past the $1 trillion mark. The stock gained more than 15% in late trading today following the report.

Earlier today, Micron announced it had signed long-term contracts with 16 customers, including data center operators and automakers that lock in sales of memory chips for a period of between three and five years. “When completed, we expect approximately half or more of our company revenue to be under these agreements,” Mehrotra told analysts. He explained that the customers had all signed binding agreements to purchase significant volumes of the company’s memory chips. All told, those long-term agreements amount to financial commitments of around $22 billion, Mehrotra added.

“This is good for Micron,” insisted Chief Financial Officer Mark Murphy. “We get visibility on our demand, it’s committed volume that we can be confident about making our investments.”

Revenue multiplied in all four of Micron’s main business segments, but the most explosive growth was naturally seen in its core data center unit. There, sales increased more than sevenfold to $11.5 billion, up from just $1.53 billion in the same period one year ago. Those sales were not just about memory chips, though, with over $5 billion linked to customer purchases of solid-state storage drives, which the company also manufactures.

The company also saw its cloud memory sales increase more than 300% to $13.77 billion in the quarter. Meanwhile, the mobile and client business saw revenue increase 250% to $11.52 billion, while memory sales for automotive and embedded applications gained more than 400%, rising to $4.63 billion.

Micron said it plans to reward shareholders by paying out a dividend of 15 cents per share in July.

Susquehanna analyst Mehdi Hosseini, who has a “buy” rating on Micron’s stock, told CNBC that the company’s stunning growth is all the more remarkable considering that the memory industry had been out of favor for more than 30 years prior. “With the memory wall playing out, customers have no choice but to pay a premium,” he added.

Photo: SiliconANGLE