Key Takeaways: Micron doubles capex as AI workloads push DRAM prices up over 50 percent, deepening a shortage behind Nvidia's $279 billion supplier commitments.
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Micron doubles capex as AI memory shortage drives $279B commitments
Micron is doubling capital expenditure as AI workloads push DRAM prices up more than 50 percent this quarter, deepening a shortage that has driven Nvidia's supplier commitments to $279 billion.
"The memory shortage we're experiencing today stems largely from the AI infrastructure expansion," Colette Kress, chief financial officer at Nvidia, said during the company's quarterly earnings call.
Micron reported record fiscal Q3 revenue of $41.46 billion and guided to roughly $50 billion for the current quarter, with adjusted gross margin approaching 86 percent. The company's HBM4 products are shipping at scale, while HBM4E development advances toward a 2027 launch. Susquehanna research projects DRAM pricing could climb over 50 percent this quarter, with NAND flash up as much as 60 percent.
Micron shares closed Wednesday at $938.40 and added 3.09 percent in after-hours trading to approximately $967.35. Wall Street's consensus price target stands near $1,525, with KeyBanc projecting $1,750. The company reports fiscal Q4 earnings on September 30, with analysts projecting EPS of $31.26 versus $3.03 a year earlier.
Capex Expansion Reflects Structural Demand Shift
Sumit Sadana, Micron's executive vice president and chief business officer, said the company is deepening long-term customer collaborations alongside the capex increase. CEO Sanjay Mehrotra characterized the current memory market as foundational, supported by $22 billion in customer prepayments spanning 16 strategic supply contracts. "This is no longer about commodities. We're delivering high-value solutions," Mehrotra said.
Nvidia's total supplier obligations have reached $279 billion, up from $119 billion in the prior quarter, with memory components representing more than half of those allocations, according to William Blair analyst Sebastien Naji. Kress said memory cost increases have "surpassed earlier projections" and will continue climbing into next year.
Valuation Gap Widens Across Memory Trio
The memory upcycle benefits all three major DRAM suppliers — Micron, Samsung, and SK Hynix — but valuations diverge sharply. Micron trades at a GAAP price-to-earnings multiple of 21.99 times, versus SK Hynix at 7.33 times and Samsung at 12.14 times, according to TipRanks analyst Louis Gerard, who shifted MU to Hold on valuation grounds.
Stifel analyst Ruben Roy noted that Nvidia has refrained from fully transferring memory cost increases across its complete product range, absorbing some expenses internally. That approach alleviates concerns about potential resistance from Nvidia or its client base.
Micron also announced an executive restructuring on Wednesday. Manish Bhatia assumes the role of president and chief operating officer, managing manufacturing operations, customer requirements, and pricing strategy. Scott DeBoer transitions to president and chief technology and products officer, directing memory and storage innovation. Sadana shifts to a senior adviser capacity.
Gartner forecasts global semiconductor revenue will reach approximately $1.6 trillion by 2026, with the memory sector alone nearing $837.3 billion. BMO Capital initiated coverage on August 21 with an Outperform designation and a $1,300 price objective.
The capex doubling reflects management's expectation that the AI memory shortage will persist well into next year. With Nvidia's $279 billion in supplier commitments and memory prices climbing at double-digit rates, Micron's capacity expansion appears timed to capture a multi-quarter pricing tailwind. The September 30 earnings report will show whether gross margins can hold near 86 percent as the company scales production.
This article is for informational purposes only and does not constitute investment advice.
