The question of just how high memory-chip prices are going to get is in the mind of almost every technology executive. The answer looks like it’s still a lot higher than current levels, which is good news for Micron Technology.
The need for memory in artificial-intelligence hardware has driven up retail prices of the components more than sixfold in just 12 months, according to industry price trackers. And things aren’t that much different in the corporate world, with overall memory industry revenue set to nearly quadruple to $837.3 billion this year, according to Gartner.
What does that mean for Micron? This quarter alone, contract prices for dynamic random-access memory (DRAM)—which accounts for about three quarters of Micron’s revenue—are set to climb more than 50% from the current quarter, according to analysis by Susquehanna on Monday. And for NAND flash memory the rise is even more pronounced, at 60%.
Micron won’t see all of that increase flow into its revenue. The company has locked in long-term supply agreements with many of its major customers which set a ceiling on its prices, in exchange for guaranteeing long-term margins. But there should be enough of its market exposed to rising prices to keep boosting its earnings power for a while yet.
“While we continue to err on the side of caution regarding the cyclical nature of the memory market, we believe that in the near term, tight supply, higher prices, and take-or-pay agreements with an expanding share of its businesses point to at least a gentler reduction in earnings power this cycle,” William Blair analyst Sebastien Naji wrote in a research note, reiterating an Outperform rating on Micron stock.
So Micron shareholders can enjoy rising prices on the way up, as well as the comfort that its long-term deals can shield it on the way down if the AI boom does fade—a pretty nice situation to be in.
Micron shares were up 2.2% in premarket trading Tuesday.
