The AI explosion could help Micron and the chip industry turn the corner
The beaten-down chip industry may be on the verge of a turnaround, and the AI explosion is at least partially to thank. This follows remarks from Micron (MU) CEO Sanjay Mehrotra, who says the memory chip maker is returning to growth after three consecutive quarters of decline.
“We continue to see AI as a secular driver of demand growth in the data center,” Mehrotra said in prepared remarks following the company’s second-quarter earnings announcement on Tuesday.
“We are well positioned to capture the opportunities in memory and storage that AI and data-centric computing architectures provide,” he added.
The semiconductor industry is coming off some of its worst days in more than a decade, thanks to extreme highs and the subsequent pandemic and the post-pandemic economic environment.
Mehrotra said, “The semiconductor memory and storage industry is facing its worst downturn in the last 13 years, with an exceptionally weak pricing environment significantly impacting our financial performance. “
Micron could benefit from the AI boom. (AP Photo/Paul Sakuma)
The surge in interest around AI, however, could help change that as businesses across all sectors seek to take advantage of the trend.
Micron isn’t the only company benefiting from wild developments in AI. Nvidia (NVDA), which hosted its GTC developers conference last week, is also set to capitalize on the need for high-powered GPUs to power AI systems.
“We’re seeing an acceleration in demand,” Nvidia CEO Jensen Huang told Yahoo Finance Live during an interview following his keynote at the conference.
“We are seeing an uptick in demand for our DGX AI supercomputers. We are seeing an uptick in demand for inference due to generative AI,” said Huang.
Rivals AMD (AMD) and Intel (INTC) could also stand to take some sales, thanks to the hype around generative AI. And they certainly could have used it.
Over the past 12 months, shares of Intel are down 35%, shares of Micron are down 19%, and shares of AMD are down 19%. Nvidia is the only company whose share price hasn’t declined by double digits, falling only 4%.
However, Micro isn’t banking on an AI boom. The company is also working to bring down inventory levels to return to growth.
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He added, “Excluding the impact of inventory write-downs, we believe our balance sheet days of outstanding inventory (DIO) peaked in fiscal Q2, and we are close to transitioning to sequential revenue growth in our quarterly results.” “
The chip industry suffered heavy losses as consumers cut back on purchasing high-tech goods during the end of the pandemic. It hasn’t helped that some businesses are also holding back on purchases amid rising interest rates.
And as consumers and businesses stopped buying, chip makers like Micron were left with excess inventory. But Micron says it has managed to bring its inventory levels back to meet current levels of demand.
“We have taken substantial supply reduction and austerity measures, including executing companywide reductions in force,” Mehrotra said. “We now recognize that customer inventories have decreased in many end markets, and we see a gradual improvement in the supply-demand balance over the coming months.”
By daniel holly, Technical Editor at Yahoo Finance. chase him @DanielHowley
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