Micron this week surpassed $1 trillion in market capitalization, a milestone that would have sounded ridiculous to most investors even a few years ago. The memory chip business has long been one of the cruelest sectors in technology, with brutal booms followed by devastating busts.
I’ve covered this story before. In 2017, I wrote about Sun Microsystems co-founder Bill Joy, who argued that the DRAM market had finally changed forever. His theory was that fewer suppliers and increased demand from cloud computing and AI would reduce the historical tendency for industries to be destroyed by overproduction.
This argument turned out to be premature, not just wrong.
Since then, Micron’s stock price has soared about 20 times. Samsung surpassed the $1 trillion market capitalization threshold earlier this month, and SK Hynix also joined on Tuesday. There are fundamentals behind these moves. Samsung made more than $30 billion in profits in the first quarter alone.
Now, investors are asking the most dangerous question in finance: “Will this time be different?”
perhaps.
The first big change is consolidation.
In the early 1990s, there were more than 20 important DRAM manufacturers around the world. Currently, the industry is effectively dominated by three companies: Samsung, SK Hynix, and Micron.
For decades, memory manufacturers responded to rising demand by flooding the market with new supply. Eventually, prices collapsed and profits evaporated. With fewer competitors, there may be less incentive to repeat the cycle.
The second change is the demand for AI itself.
Modern AI systems are memory hungry as they constantly move and process large amounts of data within huge data centers. Even advanced techniques designed to alleviate computing bottlenecks still encounter memory constraints. Startup Lightmatter uses photonics (essentially light instead of copper) to accelerate its AI data centers, but CEO Nick Harris recently told me that this does nothing to eliminate memory bottlenecks.
As a result, demand for AI is rapidly increasing and supply is constrained. Analysts at UBS noted this week that the memory maker has a multi-year deal with the cloud giant that locks in both a volume commitment and a partially fixed price. This should further enhance stability. UBS estimates that these deals could keep the DRAM market undersupplied until 2028.
Of course, this will still be an unusually large upcycle and may eventually end. Remaining players could flood the market again. New entrants may emerge. Demand for AI may cool, or new technologies may reduce the need for memory.
But investors are clearly convinced that the old memory business may finally be becoming something new.
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