The memory market has historically been a commoditized industry that has experienced major boom-and-bust cycles. Demand from new technologies will often cause prices to surge, only for the market to eventually get hit with new supply and prices to crash.
That is one of the main reasons why Micron Technology’s (NASDAQ: MU) stock trades at a forward P/E of just over 5 times fiscal 2027 (ending August) analyst estimates despite soaring growth, as investors expect the current supercycle to eventually end.
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Micron is one of the big three DRAM (dynamic random access memory) makers, along with its Korean counterparts SK Hynix (NASDAQ: SKHY) and Samsung. It currently has around a 24% market share in the DRAM market and derived 73% of its revenue from this type of memory last quarter (its fiscal Q4). It also has a 15% share in the NAND (flash) market, which made up 26% of its sales last quarter. With demand for memory far outstripping supply, Micron has seen its revenue surge and gross margins balloon largely on the back of higher DRAM and NAND prices.
AI driving memory prices
The memory market is currently being driven by the artificial intelligence (AI) infrastructure build-out. Graphics processing units (GPUs) and other AI accelerators need to be packaged with a special form of DRAM called high-bandwidth memory (HBM) to optimize the performance of these ultra-expensive chips; otherwise, they’d be sitting idle too long. At the same time, AI model training requires that its data be stored in massive solid-state drives (SSDs) consisting of flash memory.
The big three memory makers have turned much of their efforts and resources toward HBM, which has led to shortages throughout the memory industry and rapidly rising prices for both conventional DRAM and NAND. Meanwhile, keeping up with demand for HBM has been difficult, as memory makers are competing for the same limited number of extreme ultraviolet (EUV) lithography machines used to make advanced logic chips, such as GPUs and CPUs (central processing units). At the same time, HBM also uses upwards of three times the wafer capacity of ordinary DRAM. As a result, SK Hynix has said that 2027 will see the largest supply-demand imbalance in the industry’s history and that DRAM will remain in short supply until at least 2030.
