Micron Rival's Comments on Artificial Intelligence (AI) Suggest a Monster Year Is Coming | The Motley Fool (2024)

The artificial intelligence boom isn't just about chip stocks like Nvidia (NVDA -1.78%). It's also completely changing the dynamic random access memory (DRAM) market as we know it -- and for the better.

High-bandwidth memory (HBM) has been a niche technology for a long time, but with the advent of generative AI, it's now seeing massive demand as the go-to memory for training large language models.

Micron (MU -8.68%) is the biggest U.S. DRAM memory stock, and shares are up 27% on the year even after a recent 31% correction. But Korean rival SK Hynix was an early mover on HBM and is currently up an even higher 43% for 2024.

SK Hynix, meanwhile, just held its second-quarter earnings call. On it, management forecast truly remarkable growth for its HBM products in the year ahead. But if SK Hynix's growth is to be believed, Micron's growth over the coming year should be truly remarkable.

A quadrupling this year, then a more than doubling next year

On its Q2 release, SK Hynix posted some crazy AI-fueled growth. Thanks to HBM, SK Hynix's revenues grew 32% quarter-over-quarter, which annualizes to a whopping 200% growth rate. Meanwhile, operating-profit margins expanded by a whopping 10 percentage points just relative to the previous quarter, from 23% to 33%, showing huge operating leverage as SK Hynix enters a true boom cycle.

Underpinning that headline growth was HBM, which grew a stunning 80% over the prior quarter and 250% over the prior year. And even that growth was constrained by advanced packaging-capacity limitations, or those numbers could have been even higher.

Reflecting this, management forecast even greater HBM growth for the rest of this year. With ongoing capacity expansions of through-silicon via packaging and the conversion from 1-alpha to 1-beta DRAM nodes, management expects full-year 2024 HBM growth to be over 300%, accelerating on a year-over-year basis even relative to Q2.

Not only that, but the company also forecasts HBM output to more than double in 2025 on top of the quadrupling this year! SK Hynix plans to achieve that by rolling out its HBM3E 12-high product in this year's Q4, which is a denser memory product than the HBM3E 8-high product currently shipping.

And the company's growth won't stop there: SK Hynix already has HBM4 technology lined up for shipping in late 2025, likely contributing to another year of growth in 2026.

If SK Hynix is growing that fast, Micron's growth could shock

SK Hynix is in a good position as the first-mover in HBM, but Micron is rapidly catching up in terms of volume. And if one is merely looking at HBM from a technology point of view, Micron has already surpassed SK Hynix.

Though Micron was a bit late to HBM, in February of this year, it began ramping its HBM3E product in high volume. According to the company, Micron's HBM3E product is 30% more power-efficient than SK Hynix's current leading product. This was later confirmed in April by Keybanc analyst Jon Vinh, whose channel check from Asia confirmed the 30% power reduction in Micron's HBM3E chips during customer sampling.

While Micron's recent revenue growth didn't show quite the acceleration that SK Hynix did, growing "just" 17% sequentially, Micron was reporting a quarter that ended in May, not the end of June like SK Hynix. Furthermore, Micron's HBM revenue basically just started; management noted that HBM only generated a little over $100 million in the May quarter out of Micron's $6.81 billion in revenue. However, management also said it expects to make "several hundred million dollars" in HBM in fiscal 2024, then generating "multiple billions" in HBM revenue in fiscal 2025.

But keep this in mind: Micron's fiscal year ends this quarter in August. That means HBM revenue will grow from $100 million to "several hundred" million dollars in the span of just one quarter and then "multiple billions" within basically one year.

That's even faster growth than SK Hynix, owing to Micron's technology leadership and starting from a lower base. But in 2025, Micron expects its market share in HBM to at least match its market share in overall DRAM, which is currently between 20% and 25% of the market.

However, it's also possible Micron may be able to take even more share of the HBM market than the overall DRAM market. That's because Samsung, which has leading DRAM market share overall, is still yet to have its HBM qualified by Nvidia for Nvidia's top graphics processing units (GPUs). Clearly, Samsung is having some struggles with its HBM output or consistency, giving Micron and SK Hynix the opportunity to power ahead.

A rising HBM tide lifts all boats

Coming out of its worst downturn maybe ever following the pandemic, the memory industry should see skyrocketing profitability into next year. Not only have Micron and SK Hynix said they have already sold out HBM capacity for 2024 and most of 2025 already, but HBM memory consumes three times the wafer capacity of regular DRAM to produce. And Micron noted that for HBM4 next year, that ratio goes even higher.

The effect is that investment in HBM will take away capacity for regular DRAM for other applications, which should tighten supply across the entire memory industry, further increasing prices and profits for these three large players.

Therefore, while memory stocks may have gotten a tad ahead of themselves at their earlier highs, the recent 30%-plus pullback could present a great, long-term entry point.