Nvidia stock investors have reason to celebrate this week as Micron Technology, a bellwether for the semiconductor industry, reported strong quarterly earnings that bode well for the graphics chip giant.
Micron, one of the world’s largest makers of DRAM and NAND memory chips, blew past Wall Street expectations with its fiscal second quarter financial results released on Tuesday. The company generated $8.27 billion in revenue, up 12% year-over-year, and net income soared 176% to $2.3 billion.
Just as importantly, Micron issued upbeat guidance for the current quarter, projecting revenues in the range of $7.7 billion to $8.3 billion compared to the consensus estimate of $6.9 billion. The company’s rosy outlook indicates that demand for semiconductors remains healthy despite ongoing economic uncertainty.
As a maker of memory chips found in computers, smartphones, data center servers, and other electronics, Micron’s results provide an advance indicator of trends for the broader semiconductor sector. The company’s strong performance and bullish guidance signal that the downturn many feared has yet to materialize.
That’s great news for Nvidia and its investors. As the dominant supplier of graphics processing units (GPUs) used for gaming, data centers, artificial intelligence, and autonomous vehicles, Nvidia’s fortunes are tied closely to semiconductor demand trends.
Nvidia’s last quarterly report back in November reflected this linkage. The company’s revenue and earnings missed expectations amid what management called a “challenging macroeconomic environment.” Nvidia’s gaming chip sales also disappointed as consumers pulled back on discretionary purchases.
However, Micron’s latest numbers indicate those headwinds may be fading. With demand holding up better than feared, Nvidia could see a rebound in its next quarterly report. This is especially true for the company’s data center business, where revenue growth has slowed in recent quarters.
Micron’s CEO Sanjay Mehrotra cited strong demand from cloud service providers and enterprises investing in AI capabilities as drivers of the company’s data center momentum. Those same tailwinds should boost Nvidia’s data center chip sales as well, which accounted for nearly half of the company’s revenue last quarter.
Meanwhile, an improved macro outlook and stabilizing consumer spending would provide support for Nvidia’s core gaming GPU business. This segment drove 61% of total sales in the latest quarter, though revenue declined 51% year-over-year amid excess inventory and waning demand.
With Micron signaling a bounce back across semiconductors, Nvidia appears poised for a return to growth after recent stumbles. Of course, challenges remain, from inflation to President Biden’s new export controls aimed at China. But for now, Nvidia stock investors can take comfort that Micron’s blowout quarter points to sunnier days ahead.
So if you own Nvidia shares, rejoice. Micron just handed the graphics chip leader some very good news, portending a potential earnings rebound. Considering Nvidia’s dominant position in several massive growth markets including AI, data centers, metaverse, and self-driving cars, the future remains bright for this innovative technology giant.
