By Zaheer Kachwala and Anhata Rooprai
June 24 (Reuters) – Micron forecast quarterly profit and revenue well above expectations on Wednesday and said its customers had committed $22 billion to lock in supplies of memory chips, sending its shares surging 12% in after-hours trading.
The forecast – and third-quarter results that beat Wall Street estimates – underscore how AI-driven shortages are forcing Micron’s large-scale data center customers to fund capacity, reshaping the memory market.
Micron, a key supplier for Nvidia’s AI processors, has benefited from the shortage.
The company, the only U.S.-based manufacturer of high bandwidth memory chips used alongside Nvidia’s AI processors, has seen demand for these chips far outstrip its production capacity, allowing the company and rivals SK Hynix and Samsung Electronics to charge a premium for their products.
Hynix is also exploring a U.S. listing, underscoring investor efforts to tap into the AI-driven memory surge.
“We expect tight conditions to persist beyond calendar 2027 as a result of AI-driven demand across all segments coupled with structural supply constraints,” Micron CEO Sanjay Mehrotra said in prepared remarks. He added that the company does not have a sense of when memory supply will catch up with increasing demand.
The chipmaker also outlined a business model shift aimed at making demand less cyclical. The $22 billion in commitments will come from 16 strategic customer agreements Micron has signed, spanning data center, consumer and automotive markets, with take-or-pay commitments, cash deposits and pricing floors designed to lock in supply and protect margins.
Micron also said that remaining performance obligations – a key indicator of future contracted revenue – for the customer agreements it has entered into so far are around $100 billion.
“The size and scale of the AI build out has been underestimated at every turn and memory will continue to command premium pricing on supply constraints,” said Daniel Newman, CEO of tech research firm Futurum Group.
CAN PRICING POWER HOLD?
Micron’s stock has surged more than threefold this year, despite a 13% plunge on Tuesday as part of a broader selloff, boosting its market value to over $1 trillion.
The rebound comes after a brutal industry-wide slump in 2023, when excess inventory crushed prices, but some analysts have questioned whether pricing strength can extend beyond AI-driven products into the broader market.
Micron’s stock surge on Wednesday after results, along with a jump in Qualcomm shares, boosted late-day gains in Western Digital, Sandisk , Seagate Technology, Arm Holdings, Marvell, Broadcom, Applied Materials, ASML and other chipmakers, generating over $400 billion in stock market value.
Jake Behan, head of capital markets at Direxion, however cautioned that any easing in supplies would be bad news for Micron. “The bull case is built on tightness. Once supply starts to creep back, pricing power is the first thing at risk,” he said.
Qualcomm also signaled at its investor day earlier on Wednesday that its new AI chips were designed to use cheaper memory, pointing to a potential limit on how much pricing power premium memory can retain over time – a potential counterweight to Micron’s pricing power.
Micron’s chief business officer, Sumit Sadana, however, told Reuters that the agreements the company had inked were five-year term take-or-pay agreements that the industry has not done before, underscoring how much demand there was for HBM chips. Sadana also noted that it took years to build new capacity, which promised Micron long-term demand.
INCREASING SPENDING
Micron also said it intends to increase its capital return, while it invests heavily in expanding infrastructure to satisfy soaring demand.
The company expects fourth-quarter capital expenditure of around $10 billion, while analysts expected $8.89 billion.
Micron reported third-quarter revenue of $41.46 billion, flying past estimates of $35.85 billion. The company reported adjusted profit of $25.11 per share, compared with estimates of $20.78 per share.
It expects fourth-quarter adjusted earnings per share of $31, plus or minus $1, compared with the estimates of $25.84 per share.
(Reporting by Anhata Rooprai and Zaheer Kachwala in Bengaluru; Additional reporting by Noel Randewich and Max Cherney; Editing by Deepa Babington, Anil D’Silva, and Sayantani Ghosh)
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