Micron is tech’s margin king memory crisis pushes it past Nvidia, Meta

Like Micron Investors in the company are enjoying historic profit margins as customers try to adapt to the new reality of ever-rising memory prices.

Alongside Wednesday’s better-than-expected earnings report, Micron announced that gross margin, or remaining profit after accounting for cost of goods sold, rose to 84.9%, up from 74.9% in the prior period and 39% a year earlier.

This is the highest percentage of all major US tech companies, surpassing the social media giant MetaArtificial intelligence chip maker recorded 81.9% gross margin in last quarter Nvidia At 75%. This is a remarkable jump in pricing power for a company long thought of as producing a commodity.

“Fiscal quarter gross margin more than doubled from a year ago, which was a new company record,” CFO Mark Murphy said in the earnings release.

New records are coming fast and furious for Micron as data center companies gobble up all the memory they can find to keep up with AI demand. Revenue of $41.46 billion in the fiscal third quarter was an increase of more than $20 billion from the previous period, the highest in the company’s 48-year history. Net income of $28.24 billion was also up over 100% from last quarter’s previous high.

As of Wednesday’s close, Micron’s shares have risen more than 700% in the past year, pushing its market value to over $1 trillion. It’s up another 14% in extended trading.

Nvidia, Advanced Micro Devices And Google They need Micron’s high-bandwidth memory for their powerful AI processors and peripheral systems. In addition to the increasing prices these companies have to pay due to memory shortages, Apple and other consumer device makers face rising costs for memory components, also from Micron and a small group of other vendors.

Apple CEO Tim Cook said: Wall Street MagazineIn an interview published last week, he said the iPhone maker would have to raise prices to deal with a memory situation he described as “unsustainable.”

Micron said Wednesday that it is eyeing long-term deals called strategic customer agreements (SCAs) at price levels that will keep the company’s margins high. This is a shift for an industry that often focuses on short-term supply.

“The base price for our price-banded SCAs provides very strong gross margins for Micron, well above our highest quarterly margins in any past cycle,” CEO Sanjay Mehrotra said on the call. he said.

Before Micron’s soaring margins, Nvidia was seeing unprecedented increases in profitability as its graphics processing units became a core part of the infrastructure for developing AI models. Nvidia is currently the most valuable company in the world with a market value of nearly $5 trillion.

But Nvidia’s gross margin peaked at around 79% in early 2024; this was about six percentage points below Micron’s current level. Chipmaker among today’s other megacap companies Broadcom’s margin is at 69.5% and follows Microsoft 67.6% and Alphabet It is at 62.4%.

Micron’s rival among major technology companies in the US sandisk is the company with the next highest margins. Sandisk in late April reported quarterly gross profit margin increased to 78.4% from 51.1% in the previous period.

For investors wondering where Micron will go next, the company is confident that the current economics will continue. It projected a gross margin of roughly 86% for the fiscal fourth quarter, and Murphy said the company expects “the market to remain tight beyond 2027.”

It’s a big turnaround for an industry that has been “out of favor for 30 years since its inception,” Mehdi Hosseini, a Susquehanna analyst, told CNBC’s “Closing Bell Overtime” on Wednesday.

“Once the memory wall is over, customers have no choice but to pay a premium,” said Hosseini, who recommends buying Micron shares.

WRISTWATCH: Micron customers have no choice but to pay premium