Micron is technology industry’s margin king, overtaking Nvidia and Meta in memory crisis

as micron The company’s investors are enjoying historic profit margins as customers try to adapt to the new reality of ever-rising memory prices.

Micron on Wednesday reported better-than-expected earnings and said its gross profit margin, or profit after accounting for cost of goods sold, was 84.9%, up from 74.9% in the previous quarter and 39% a year earlier.

This is the highest percentage of any major U.S. technology company, and more than any social media giant. metaan AI chip maker that posted a gross margin of 81.9% in its most recent quarter. Nvidia At 75%. This is a surprising leap in pricing power for a company that has long been seen as a producer of goods.

“Our gross profit margin for the third quarter was more than double the same period last year, setting a new company record,” Chief Financial Officer Mark Murphy said in an earnings call.

New records are coming fast and furious for Micron as data center companies gobble up all the memory they can find to meet the demands of artificial intelligence. Third-quarter sales were $41.46 billion, an increase of more than $20 billion from the prior quarter and the highest in the company’s 48-year history. Net income was $28.24 billion, also up more than 100% from the previous quarter’s high.

As of Wednesday’s close, Micron’s stock price has risen more than 700% over the past year, giving it a market capitalization of well over $1 trillion. Shares rose another 14% in after-hours trading.

Nvidia, advanced micro device and google Powerful AI processors and surrounding systems require Micron’s high-bandwidth memory. In addition to the increased prices these companies have to pay due to memory shortages, apple Consumer device manufacturers such as Micron and a handful of other vendors are facing increased costs for memory components as well.

Apple CEO Tim Cook told the Wall Street Journal in an interview published last week that the iPhone maker needs to raise prices to address a memory situation he described as “unsustainable.”

Micron announced Wednesday that it is entering into long-term contracts, known as strategic customer agreements (SCAs), at price levels that will keep the company’s profit margins high. This is a change for an industry typically focused on short-term supply.

“For our SCA, which has a price range, the price floor allows Micron to deliver very strong gross margins, well above the quarterly peak margins in any historical cycle,” CEO Sanjay Mehrotra said on a conference call.

Before Micron’s profit margins skyrocketed, Nvidia was achieving unprecedented profitability growth as its graphics processing units became critical infrastructure for AI model development. Nvidia is now the world’s most valuable company, with a market capitalization of nearly $5 trillion.

But Nvidia’s gross profit margin peaked at about 79% in early 2024, about 6 percentage points below Micron’s current level. Among today’s other mega-cap companies, chipmakers Broadcom’s The profit margin was 69.5%, followed by microsoft At 67.6%, alphabet It was 62.4%.

Micron’s rivals across large U.S. tech companies sandisk is the company with the next highest profit margin. In late April, SanDisk reported that its gross profit margin for the quarter increased to 78.4% from 51.1% in the prior quarter.

For investors wondering where Micron is going next, the company is confident that current economic conditions will hold. Murphy expects fiscal fourth-quarter gross margins to be about 86%, and said he expects “the market to remain tight into 2027 and beyond.”

Susquehanna analyst Mehdi Hosseini told CNBC’s “Closing Bell Overtime” on Wednesday that it’s quite a turning point for an industry that has been “unpopular for 30 years since its inception.”

“With the ongoing memory wall, customers have no choice but to pay a premium,” Hosseini said, recommending buying Micron stock.

Note: Micron customers have no choice but to pay a premium