The semiconductor trade is in restoration mode this yr, due to the rising demand for chips from a number of purposes similar to smartphones, private computer systems (PCs), and information facilities. However there may be one explicit area of interest inside this trade that’s having fun with a greater increase than the broader semiconductor market.
The Semiconductor Trade Affiliation is anticipating the worldwide semiconductor market to report 16% income development this yr. Nonetheless, the marketplace for reminiscence chips is anticipated to clock a lot sooner development than the semiconductor house. Market analysis agency Gartner is anticipating a 66% bounce in reminiscence spending this yr.
Micron Know-how has been benefiting huge time from this surge in reminiscence gross sales, as is evident from its latest quarterly results. Shares of the reminiscence specialist have gained 54% in 2024, and a potential acceleration in its development may assist it soar additional. Nonetheless, there may be one other reminiscence inventory that has clocked wholesome features of 42% thus far this yr and that might get a good shot in the arm when it releases its quarterly outcomes later this month — Lam Analysis (NASDAQ: LRCX).
Let us take a look at the explanation why.
Artificial intelligence is boosting reminiscence demand
On its newest earnings convention name, Micron Know-how administration identified that the demand for reminiscence that is deployed in artificial intelligence (AI) chips — generally known as high-bandwidth reminiscence (HBM) — is booming. Extra particularly, Micron administration identified that its HBM capability “is bought out for calendar 2024 and 2025, with pricing already contracted for the overwhelming majority of our 2025.”
The chipmaker is anticipating its HBM income to extend from “a number of hundred million {dollars}” in fiscal 2024 to “a number of billions of {dollars}” in fiscal 2025. Such stable demand for HBM explains why reminiscence producers similar to Micron want to increase their manufacturing capacities. As an example, Micron’s peer SK Hynix has commissioned the development of a new facility to satisfy surging HBM demand.
Hynix is anticipating HBM manufacturing capability to greater than double in 2024, and a comparable state of affairs is about to unfold at Samsung. What’s extra, Samsung is anticipating to double HBM capability once more in 2025. All this bodes nicely for Lam Analysis, which will get most of its income from promoting reminiscence manufacturing gear.
Extra particularly, 44% of Lam’s income comes from promoting reminiscence gear. So the robust demand for reminiscence chips ought to ideally translate into extra enterprise for Lam. This is why the corporate is about to report year-over-year development when it releases its quarterly outcomes this month.
Lam Analysis’s return to development may translate into extra upside
Lam Analysis has guided for income of $3.8 billion for the quarter that ended on June 30, which can also be its remaining quarter of fiscal 2024. This would translate into year-over-year development of 19%. For comparability, Lam’s income in the primary 9 months of fiscal 2024 fell 22% yr over yr to $11 billion. The corporate struggled because of an oversupply in the reminiscence trade, which was triggered by weak smartphone and PC demand final yr.
Nonetheless, the arrival of AI is driving a turnaround in each these markets. Gross sales of AI-enabled smartphones and PCs are set to take off remarkably in the approaching years, and that ought to create the necessity for extra reminiscence chips. Micron, as an illustration, factors out that it’s witnessing a 50% to 100% improve in reminiscence capability in AI smartphones this yr, in comparison with final yr’s fashions. In the meantime, AI-enabled PCs are anticipated to sport 40% to 80% extra DRAM (dynamic random-access reminiscence) content material.
Not surprisingly, spending on DRAM reminiscence gear is anticipated to extend at a compound annual development fee of 17% by way of 2027, in keeping with trade affiliation SEMI. In the meantime, spending on NAND flash storage may bounce at an much more spectacular fee of 29% throughout the identical interval.
All this explains why analysts predict Lam Analysis to report wholesome development from fiscal 2025, which has simply begun. Lam’s estimated high line of $14.9 billion for fiscal 2024 factors towards a 15% drop from the previous yr.
Wall Avenue may reward the acceleration in Lam’s development with extra upside on the inventory market, particularly if it reviews a stable set of outcomes later this month. The developments in the reminiscence market point out that Lam may certainly ship spectacular outcomes that might beat expectations. Its steerage may additionally turn into stable, due to the potential bounce in spending on reminiscence gear.
That is why now could also be a good time to purchase this AI inventory, as its upcoming quarterly report may give it a shot in the arm.
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Harsh Chauhan has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Lam Analysis. The Motley Idiot recommends Gartner. The Motley Idiot has a disclosure policy.
Up 42% in 2024, This Artificial Intelligence (AI) Stock Could Get a Big Boost in July was initially revealed by The Motley Idiot