Why Micron Stock Is Getting a Boost From Nvidia’s Memory Price Warning

Micron Technology shares have risen nearly 700% in the past 12 months. (Justin Sullivan/Getty Images)

Key Points

• Nvidia executives said extreme pricing conditions in memory chips would hit the company’s gross margins.
• Nvidia plans to pay even higher prices for memory chips next year and is working with suppliers to increase capacity.
• Nvidia has made $279 billion in commitments to suppliers, more than doubling from $119 billion in the previous quarter.

Nvidia thinks the price of memory chips is outrageous—and it’s still willing to pay it. That’s great news for Micron Technology and its peers.

Micron shares were up 4.1% in premarket trading Thursday. SK Hynix’s American depositary receipts were gaining 4.1%.

Apart from confirming that the artificial-intelligence boom has a lot further to run, Nvidia’s earnings on Wednesday came with one big message: higher memory prices are here to stay. The chip maker’s executives said “extreme pricing conditions in memory” would hit its gross margins.

“The magnitude of the price increase has exceeded our prior expectations and are headed even higher into next year,” Chief Financial Officer Colette Kress said during the earnings call.

Normally a company’s customers flagging extreme costs might spell trouble for the supplier but Nvidia said it would pay even higher prices next year. And Nvidia CEO Jensen Huang didn’t suggest he was ready to walk away, only noting that the company was working with all three major suppliers—Micron and its South Korean peers Samsung Electronics and SK Hynix—to increase capacity.

That should soothe any concerns Nvidia is looking to reduce its reliance on Micron and its peers’ hardware. There have been multiple reports Nvidia is looking at downgrading the amount of memory packaged with some variants of its next-generation Rubin chips, the latest coming from semiconductor and AI research firm SemiAnalysis this week.

But with Nvidia having made commitments to suppliers worth $279 billion as of its latest quarter—more than doubling from $119 billion the previous quarter—Micron shareholders can be confident plenty of that money is heading their way.

“Memory accounts for well over half of [Nvidia’s] total supply allocation, a positive indicator that despite news of de-specing, demand for memory remains well ahead of supply—good news for SK Hynix and Micron,” wrote William Blair analyst Sebastien Naji in a research note.

Write to Adam Clark at adam.clark@barrons.com

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