Training and running advanced artificial intelligence (AI) models requires powerful accelerators, and those accelerators, in turn, require ultra-fast memory chips capable of moving data quickly. While PCs, servers, and smartphones can make do with standard memory chips, AI accelerators generally use high-bandwidth memory (HBM).
As such, HBM is in high demand, and memory chip manufacturers like Micron (MU 2.91%) have been shifting some of their production capacity to take advantage. While this shift was expected to help prop up prices for standard memory chips by somewhat constraining their supply, that's not what's happening. Instead, demand for standard memory across most of Micron's end markets is weak enough that prices for those chips are set to plunge in the first quarter of 2025.
Another downturn has arrived
While strong demand for HBM will soften the blow for Micron, it appears that a memory chip market downturn has arrived. TrendForce put out its estimates for memory chip prices late last month, and the figures are rough.
Across all end markets, prices for standard DRAM (dynamic random-access memory) are expected to decline sequentially by between 8% and 13% in Q1. Declines will be widespread, but the PC and consumer DRAM markets are expected to be hit the hardest. Even factoring in HBM, blended DRAM prices will still decline by as much as 5% in the first quarter.
Seasonality is partly to blame, but it's not the whole story. Some customers have been stockpiling memory chips in preparation for the tariffs that President-elect Trump has promised to impose. This pulled demand forward. Sales weakness for PCs and smartphones is also a factor.
Prices for older-style DDR4 memory chips will decline faster than newer DDR5 chips, due in part to a flood of chips coming from Chinese manufacturers. Some DDR4 manufacturing capacity has been shifted to DDR5, which has increased DDR5 supply and put downward pressure on prices.
The situation in the NAND market isn't looking any better. TrendForce expects overall NAND prices to plunge by 10% to 15% in the first quarter as rising inventories and soft demand take their toll. Prices for chips that go into PCs and smartphones will be particularly weak, while prices for enterprise SSDs will decline the least.
At the end of the day, Micron is a commodity manufacturer
Demand for HBM chips will buffer Micron's bottom line against weakening demand and falling prices for other types of memory, but the chipmaker's results remain beholden to supply and demand. A few quarters of significant price declines would cause Micron's earnings to plunge. Management has already guided for a big decline in adjusted earnings per share in its fiscal 2025 second quarter (now underway) compared to its fiscal first quarter(which ended Nov. 28). The situation will get worse if price declines persist beyond next quarter.
Eventually, once the AI market matures, high-bandwidth memory will also start acting like a commodity product, and its pricing will be dictated by supply and demand just like other types of memory chips. If it turns out that we're in an AI bubble that's bound to pop, it's possible that manufacturers will have an extreme amount of HBM overcapacity down the road.
There's no telling how long the broader memory chip downturn will last or how severe it will be. But even if HBM demand remains strong this year, it looks like Micron's profits are set to tumble, at least temporarily.
