Micron Boosts Factory Spending in Bid to Keep Up With Demand

Micron Technology Inc. warned that it will need to spend heavily on production to meet burgeoning demand, overshadowing a generally upbeat forecast from the largest US maker of computer memory chips.

Capital spending will exceed $25 billion this fiscal year, which runs through August, the company said as part of its quarterly report on Wednesday. Analysts had estimated $22.4 billion. Micron added that 2027 expenditures will increase more than $10 billion from the prior year.

Micron CEO Sanjay Mehrotra is ramping up spending to meet soaring AI computing demand.

“We project our fiscal 2027 capex to step up meaningfully,” Chief Executive Officer Sanjay Mehrotra said during a conference call.

The heavy spending reflects the cost of keeping up with an insatiable appetite for Micron’s memory chips, especially the high-bandwidth components used in artificial intelligence computing. Though Micron’s sales are expected to keep soaring, the latest report drew a chilly reception from investors. The shares fell as much as 4.9% to $439.

Fiscal third-quarter revenue will be approximately $33.5 billion, the Boise, Idaho-based company said. Analysts estimated $23.7 billion on average for the period. Excluding some items, profit will be about $19.15 a share, compared with a projection of $11.29.

Memory prices have been soaring because of shortages fueled by AI computing demand. High-bandwidth memory is critical to the data transfer needed for training and running artificial intelligence models. That’s led memory makers to allocate more production to these higher-margin orders, hurting supply of other types of memory and causing price spikes.

Hendi Susanto, a portfolio manager at Gabelli Funds, said he thinks Micron is in a good position structurally. Micron shares had risen 62% this year heading into the report, making it the best-performing stock on the closely watched Philadelphia Stock Exchange Semiconductor Index.

For the fiscal second quarter, which ended Feb. 26, sales nearly tripled to $23.9 billion. Earnings climbed to $12.20 a share. Analysts had estimated $19.7 billion in revenue and $9 a share in profit on average, according to data compiled by Bloomberg.

The company and other memory-chip makers have benefited from an unprecedented data center build-out. Their market is dominated by just three providers — Micron, Samsung Electronics Co. and SK Hynix Inc. — and demand is expected to stay strong for years to come.  Memory shortages have been good for Micron and its peers, but hard on the broader tech industry and consumers. Supply constraints have raised prices and lowered the number of smartphones and computers slated to ship this year. HP Inc. said last month that the company has seen memory prices roughly double in the current quarter from the previous period.

Read More: Smartphone Market to Shrink 13% on Memory Crisis, IDC Says

The global shortage is likely to persist another four to five years because of endemic constraints in semiconductor production, Chey Tae-won, head of SK Group, said this week.

In the AI market, Micron is working to ramp up production of new high-bandwidth memory, or HBM4. A big question is how much Nvidia Corp. will rely on Micron for that component.

Any decision by Nvidia to limit its use of Micron for the new Vera Rubin line — and instead favor rival products — would be a significant blow.

Nvidia is the dominant maker of AI accelerators, the main processors used to power artificial intelligence. Memory components from Micron and its competitors assist those chips in holding and managing data.

Last month, Micron shares surged after Chief Financial Officer Mark Murphy assured investors that the company is producing HBM4 in high volumes.

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