We're just starting to see the results of the latest AI technology, which went viral a year ago. AI automating routine and time-consuming tasks will save time and money, according to early signs. All kinds of businesses are studying ways to incorporate this technology, although it's early.
Micron Technology (NASDAQ: MU) CEO Sanjay Mehrotra acknowledged the hard road ahead. "We are in the very early innings of a multiyear growth phase driven by AI as this disruptive technology will transform every aspect of business and society," stated.
Though estimates of its importance vary, the best minds in technology are increasingly making that bold claim. Bloomberg Intelligence predicts a $1.3 trillion generative AI business by 2032. McKinsey & Company is more optimistic, estimating $2.6 trillion to $4.4 trillion yearly. Clearly, the opportunity is huge.
Multiple profit streams Micron Technology isn't well-known, but it makes AI processing components, especially for data centers. Micron, a top DRAM and NAND chip producer, boosts Nvidia's GPUs, the data center standard, with each chip.
Nvidia's H200 Tensor Core GPUs would use Micron's HBM3E chip in November to provide "advanced memory to handle massive amounts of data for generative AI and high-performance computing workloads," according to a press release. Nvidia added that the HBM3E optimised the H200, which had "nearly double the capacity and 2.4 times more bandwidth compared with its predecessor, the Nvidia A100."
The second quarter of 2024 will see these data center workhorse processors ship. Micron began volume production of the HBM3E last month, claiming it outperforms competitors while consuming 30% less power. As data center workloads grow, energy consumption becomes more important, which is why Nvidia picked Micron's power-stingy CPUs.
The huge AI opportunity The secular tailwind of AI is just beginning to manifest in Micron's results. In Micron's fiscal 2024 second quarter, which ended Feb. 29, revenue rose 58% year over year and 23% sequentially to $5.82 billion. Companies said rising demand "drove robust price increases." This enabled the cyclical chip business return to profitability earlier than planned, posting $0.42 adjusted EPS.
Management predicts faster company growth. Micron expects third-quarter revenue of $6.6 billion, up 76% year-over-year. Also, its adjusted EPS should rise to $0.45. Micron's HBM supply for 2024 and most of 2025 is sold out. This shows how generative AI usage is driving demand.
The continuing data center upgrade cycle drives that demand since present servers lack the processing horsepower for generative AI. The AI server market will increase 75% yearly over the next three years, according to Bernstein analyst Toni Sacconaghi, making the upgrade cycle "unprecedented." As AI moves from data centers to smartphones and PCs, demand for Micron's other solutions is projected to rise.
Micron Technology's valuation has risen with AI excitement. However, the stock trades at 4 times next year's sales. That's a premium compared to the S&P 500's multiple of 3, but AI's rising demand has driven Micron's storage and memory solutions. Micron, a prominent AI processor supplier, may be a once-in-a-generation investment.
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