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Micron’s Shares Drop as Margin Forecast Dampens AI Prospects

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Micron Technology’s shares dropped 8% on Friday after the company issued a disappointing margin forecast, overshadowing strong quarterly revenue expectations driven by growing demand for its semiconductors used in artificial intelligence applications.

Despite being one of only three major suppliers of high-bandwidth memory (HBM) chips for data-heavy AI tasks, Micron’s forecast for adjusted gross margin fell below expectations. The company cited lower pricing for consumer memory chips, particularly NAND flash, as a key factor affecting profitability. NAND flash memory chips, used in products like smartphones and personal computers, remain in oversupply due to aggressive buying during the pandemic, which has led to weak pricing.

Micron projected a third-quarter adjusted gross margin of around 36.5%, slightly below analysts’ forecast of 36.9%. This would represent a 3 percentage-point drop from the previous quarter. The company’s chief business officer, Sumit Sadana, acknowledged the ongoing challenges in the NAND market, with the oversupply continuing to put pressure on margins. Micron has also been reducing NAND production, which has led to underutilization and higher fixed costs per unit.

However, the company’s prospects in AI remain strong, with a forecasted revenue boost driven by high demand for its HBM chips, particularly from key players like Nvidia. Morningstar analysts highlighted HBM as a key growth driver for Micron, with AI and data center demand expected to continue.

Micron Forecasts Strong Revenue Growth Driven by High AI Memory Chip Demand

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Micron Technology (MU.O) has forecasted a robust third-quarter revenue, exceeding Wall Street estimates, driven by growing demand for its high-bandwidth memory (HBM) chips crucial to artificial intelligence (AI) models. This surge in AI-related demand sent Micron’s shares up by 2% in after-hours trading.

The company highlighted that AI demand is significantly boosting the need for HBM chips, a specialized form of dynamic random access memory (DRAM) vital for advanced AI systems, particularly those powered by Nvidia’s (NVDA.O) processors—one of the major beneficiaries of the AI boom.

Micron’s Chief Business Officer, Sumit Sadana, told Reuters that the company expects continued sequential growth through 2025, driven by increased capacity and market share in HBM production. Notably, Micron’s HBM chips for 2025 are already sold out, reflecting strong demand.

In addition to HBM chips, Micron also provides flash memory NAND chips, with demand expected to rise across both data center and consumer markets. The company forecasts significant profitability improvements for fiscal 2025, which ends in August.

Michael Ashley Schulman, Chief Investment Officer at Running Point Capital, emphasized Micron’s key role in supplying essential memory components for AI infrastructure, noting that the company’s positive outlook underscores its importance in the rapidly expanding AI sector.

Micron’s forecast includes anticipated revenue of $8.80 billion, with a margin of plus or minus $200 million for the third quarter. This exceeds the consensus estimate of $8.5 billion. For the second quarter ending February 27, Micron posted revenue of $8.05 billion, surpassing the $7.89 billion estimate, with earnings per share of $1.56, well above the $1.42 forecast.

However, Micron also acknowledged the uncertainty surrounding potential new tariffs imposed by the Trump administration, stating that it has not factored the potential impact into its forecasts but plans to pass any costs on to customers.

Semiconductor Groups Criticize Biden Administration’s New Export Controls

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A coalition of semiconductor and manufacturing trade groups has expressed concern over new export control regulations announced by the Biden administration, claiming they were rushed through without proper industry consultation. In a private letter dated January 13 and addressed to U.S. President Joe Biden, groups such as the Semiconductor Industry Association (SIA) and SEMI voiced objections to new rules that could affect the global distribution of advanced computing chips.

The Biden administration’s regulations, released on Monday, introduced a three-tier system governing the placement of U.S.-made chips, including those from companies like Nvidia, in AI data centers. These rules mandate that most countries will need to obtain licenses to use these chips in such projects.

In their letter, the trade groups expressed concerns over an additional rule expected to be announced soon, which would impose even stricter controls on high-bandwidth memory, a critical component for AI chips. The groups argued that these regulations were being implemented without adequate input from industry stakeholders, raising fears about the impact on U.S. companies and the potential to shift market share to international competitors.

High-bandwidth memory is primarily produced by U.S. and South Korean firms, and the new rules could limit its sale to China. A source familiar with the upcoming regulations indicated that the measures might also reverse a previous interpretation, potentially reducing revenue for companies like Lam Research, which supplies chip-making equipment to China. Lam Research has yet to comment.