Micron’s Upcoming Earnings Report Highlights the Persistent DRAM and NAND Shortage

Key Points

Micron Technology (NASDAQ: MU) is preparing to release its earnings later this month. This report is expected to provide strong evidence that the memory chip shortage remains far from resolved, particularly for DRAM. With demand accelerating and supply remaining tight, the memory sector is experiencing a significant boom, resulting in expanding revenues and gross margins across the industry.

The memory market is primarily divided into DRAM and NAND flash. DRAM is a fast-volatile memory that loses its data when power is removed. Traditionally, it has served as a high-speed temporary workspace for central processing units (CPUs) in computers and smartphones. However, the recent resurgence of DRAM has been primarily driven by high-bandwidth memory (HBM), a variant that is packaged alongside graphics processing units (GPUs) and other artificial intelligence (AI) chips to minimize latency and enhance performance.

Image source: The Motley Fool

The other major category is NAND, or flash memory. This is a non-volatile memory type used for long-term data storage. It is utilized in computers, smartphones, electronic devices, and memory cards. NAND has also experienced a surge in demand, fueled by AI data centers requiring massive solid-state drives (SSDs) to store training data.

Pricing drives growth

Micron is one of the three major DRAM manufacturers, alongside South Korean companies SK Hynix and Samsung. In the previous quarter, DRAM accounted for 76% of its revenue, with the remainder mostly coming from NAND. Revenue for both memory types surged during its fiscal Q3. DRAM revenue increased from $7.1 billion a year ago and $18.8 billion in fiscal Q2 to $31.3 billion, while NAND revenue grew from $2.2 billion a year earlier and $5 billion the prior quarter to $9.9 billion.

This expansion was largely driven by pricing adjustments stemming from industry shortages. DRAM volumes increased in the low single digits sequentially, with average selling prices (ASPs) rising in the low 60% range quarter over quarter. NAND volumes grew in the mid-single-digit range, while prices jumped in the mid-80% range.

Current indicators suggest a similar trend will persist when Micron reports its fiscal Q4 results on Sept. 30. TrendForce recently estimated that Micron’s calendar Q2 DRAM revenue surged 65.5% sequentially to $36 billion. While this figure does not perfectly align with its fiscal Q4, which concluded in August, it highlights the substantial price increases the industry and the company are experiencing. Notably, Micron is benefiting from a smaller mix of HBM, as ASP growth for this premium memory has been relatively modest.

Concurrently, both DRAM and NAND prices reached record highs in August. According to DRAMeXchange, which is owned by TrendForce, the average price for standard PC DRAM climbed more than 4% month over month to $25. Meanwhile, standard NAND prices for memory cards increased by 1.4% month over month to $30.10 in August. TrendForce anticipates PC DRAM prices will climb between 18% and 23% sequentially in Q3, with NAND prices expected to continue rising as well.

All eyes on Micron’s guidance

Micron has been among the top-performing AI stocks this year, and it will undoubtedly deliver another blockbuster quarterly earnings report. However, the primary focus will be on its guidance and future commentary rather than the actual results. While memory prices cannot maintain their current breakneck pace indefinitely, they are likely to remain elevated.

Competitor SK Hynix has stated that the DRAM supply-demand imbalance will only worsen in 2027, and it does not expect the market to achieve balance until 2030 at the earliest. This outlook is supported by spending on AI infrastructure and factors constraining DRAM supply, such as competition with chipmakers for new EUV machines and the fact that HBM requires three times the wafer capacity of standard DRAM. Meanwhile, flash memory player Sandisk stated at its analyst day last month that it expects modest sequential NAND price increases throughout fiscal 2027.

Consequently, I anticipate highly optimistic commentary from Micron regarding the upcoming fiscal year. Given this outlook and its low valuation—a forward P/E of 6 times fiscal 2027 estimates—the stock appears attractive heading into the report.

Source link