By Dan Gallagher

Micron is getting a definite piece of the artificial-intelligence boom. But for a company in the expensive business of manufacturing its own chips, costs matter as well.

The memory chip maker's costs ended up stealing the show on its fiscal second-quarter report late Thursday. Revenue jumped 38% year over year to nearly $8.1 billion and beat Wall Street's targets. The company also issued a strong sales outlook for the current quarter. High-bandwidth memory, or HBM, that is used in AI systems designed by companies like Nvidia was a star performer, with quarterly sales exceeding $1 billion for the first time ever- surging more than 50% from just three months ago.

But Micron's adjusted gross margins of 37.9% slightly missed analysts targets, as did its gross margin projection for the current quarter. Micron caused additional concern by noting on its conference call that it expects gross margins to be "up somewhat" in the August-ending quarter-suggesting a shortfall to the three-point sequential gain analysts had been expecting. "Despite record sales from AI tailwinds, Micron's [gross margins] remain weak," wrote Vivek Arya of BofA Securities in a note to clients.

Micron's share price thus slid more than 8% Friday-reversing from a 4% boost in after-hours trading following the results the previous evening.

The margin miss may seem slight, but Micron's 22% gain for the year ahead of its earnings report actually led the chip sector; the PHLX Semiconductor Index was down 7% for the year. Most analysts are still largely positive on Micron; Brian Chin of Stifel noted that the longer-term forecast "likely errs on conservatism given August is still five months out."

Hopefully time ends up on Micron's side.

This analysis comes from the Journal's Heard on the Street team. Subscribe to their free daily afternoon newsletter here.

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March 21, 2025 12:01 ET (16:01 GMT)

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