Arshiya Bajwa
(Reuters) – Micron Technology Inc shares jumped 15 percent in premarket trading on Thursday, leading a rise in semiconductor stocks, as the company’s upbeat sales outlook suggested robust demand for the chips used to power generative AI technology.
The company’s high-bandwidth memory chips (HBM) are used in NVIDIA’s popular artificial intelligence processors, and its market capitalization is expected to increase by more than $17.5 billion.
Strong demand for HBM chips has helped Micron offset inventory buildups in other areas, such as the PC market.
The company delivered its best quarterly revenue growth in a decade in the fourth quarter ended Aug. 29 and has outlook for the current fiscal year that is well above Wall Street expectations.
The gains also helped push shares of Nvidia and Broadcom up more than 1.5%, while other semiconductor companies including AMD and Intel rose nearly 2.5%.
“The company is benefiting from a broad-based, strong upturn in demand for memory chips, fueled by AI-related demand,” Morningstar analysts said in a note.
Strong pricing for HBM chips is expected to improve Micron’s gross margins, which have been squeezed by the expensive ramp-up of HBM manufacturing capacity.
The company said it now expects adjusted gross margin to be about 39.5% for the first quarter ended in November, up from a previously expected 37.7%.
Adjusted gross margin for the fourth quarter was 36.5%, up from minus 9.1% in the same period last year.
Higher gross margins for the company’s HBM products helped drive overall margin growth, CEO Sanjay Mehrotra said in a conference call after the company’s earnings release on Wednesday.
Morgan Stanley analysts said benchmarks for Micron were relatively low this earnings cycle, which translated into the company’s strong performance.
According to LSEG, nine of 26 analysts lowered their first-quarter earnings forecasts after Micron’s last earnings report in June due to concerns that HBM prices were falling.
Micron has largely allayed those concerns, with Chief Financial Officer Matt Murphy saying improved profitability in the fourth quarter was due to higher prices.
(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Janene Venkatraman)
