Micron Technology (MU) shares moved firmly higher in early Monday trading as analysts continue to see added value from the makers of a crucial component to the rollout of AI technologies that could be worth billions over the coming years.
Micron, which has fought hard for its share of the memory-chip market against Asia-based giants such as SK Hynix and Samsung, is quickly transitioning into the AI sector with a new semiconductor designed to support generative-AI applications.
High-bandwidth-memory chips, often called HBM, are made to be imbedded in larger artificial-intelligence semiconductors, such as those made by market leader Nvidia (NVDA) , and help boost performance and reduce power consumption.
Micron, which unveiled a development deal with Nvidia to insert HBM into its new H200 semiconductors, said a growing surge in demand is likely to drive overall sales closer to levels for its legacy DRAM memory products over the next two years.
"We are on track to generate several hundred million dollars of revenue from HBM in fiscal 2024 and expect HBM revenues to be accretive to our DRAM and overall gross margins starting in the fiscal third quarter," CEO Sanjay Mehrotra told investors last month.
HBM demand surges with AI rollouts
"Our HBM is sold out for calendar 2024, and the overwhelming majority of our 2025 supply has already been allocated," he added.
That demand helped Micron not only post a surprise fiscal-second-quarter profit of 42 cents a share, firmly ahead of Wall Street's forecast for a loss of 25 cents, but also forecast current-quarter revenue in the region of $6.6 billion.
New customers are in the pipeline, Micron said, as the HBM's boosted capacity helps clients "pack more memory per GPU, enabling more powerful AI training and inference solutions."
Related: Analyst overhauls Nvidia stock price target after conference
Bank of America Securities analyst Vivek Arya is similarly bullish. He forecasts that HBM demand will take the overall market size to around $20 billion by 2027, with Micron's share growing to around 20% from 5% currently.
"The adoption of accelerated/AI servers represents a generational shift with Nvidia and Broadcom (AVGO) as the leaders," said Arya, who lifted his price target on Micron by $24 to $144 a share and affirmed a buy rating on MU.
"However, we believe the rising tide – the accelerator market – is expected to double to $200 billion over the next three years and could create volatile but fruitful opportunities among the #2 vendors," he added.
B of A's Arya sees 'junior samurAI value'
Arya calls those second-tier players, including Micron, Marvell (MRVL) and Advanced Micro Devices (AMD) "junior samurAI".
"Each 'junior samurAI' trades interestingly at a valuation premium to its respective leader, so greater stock volatility is to be expected," Arya said. "However, as the leader expands the [total addressable market], the junior can likely continue to carve out a profitable niche."
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Micron shares were marked 6.9% higher in midday trading to change hands at a fresh record high of $126.01 each. That move would extend the stock's year-to-date gain to around 53% and value the Boise, Idaho, chipmaker at around $140 billion.
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