The artificial intelligence (AI) infrastructure boom is advancing, and if the recent decision Taiwan Semiconductor Manufacturing (NYSE: TSM ) A significant increase in its capital expenditure (capex) budget is any indication, we are still in the early innings. Perhaps no company is more at risk of manufacturing than TSMC, because if it builds a bunch of fabs (chip manufacturing plants) that are underutilized down the road, it will crush its gross margins and lead to a bunch of unprofitable facilities. Thus, its management team has taken this decision after careful consideration and research.
Meanwhile, one company at the center of the AI infrastructure boom is set to benefit from its own obstacles. Micron Technology (name: mu). While TSMC manufactures the logic chips, Micron makes the memory components, which require their own separate fabs. The DRAM (dynamic random access memory) market is essentially an oligopoly, and Micron, Samsungand SK Hynix Typically manufacture these chips yourself instead of going to a third-party contract manufacturer.
While graphics processing units (GPUs) are at the heart of building AI infrastructure, for these chips to perform optimally, they require a special form of DRAM called high-bandwidth memory (HBM). HBM allows the GPU to store data and then quickly retrieve and transmit it. In a world where computing processing speed is becoming increasingly important, the demand for HBM is skyrocketing. However, the HBM manufacturing process is more complex than regular DRAM and requires three to four times the wafer capacity. With very high gross margins and strong demand, however, companies are devoting more of their production to HBM.
This is creating a shortage not only of HBM but also of DRAM in general. As a result, prices for HBM and all DRAM memory are rising rapidly, as the market is in short supply. Micron sees the HBM market growing at a 40% compound annual growth rate (CAGR) through 2028. Its current HBM supply is already booked out for this year, and the company should continue to benefit from rising memory prices.
About 80% of Micron’s revenue comes from the DRAM market, with another 20% from NAND (flash memory). The NAND market is also in short supply. Demand for giant, high-performance solid-state drives (SSDs) that use flash memory is growing due to AI, while at the same time, companies are reluctant to bring back production after the market crashed from oversupply a few years ago.
