Shares of Micron dropped by 8% on Friday due to a disappointing margin forecast despite a positive quarterly revenue outlook fueled by the demand for its semiconductors for artificial intelligence applications. The company, known for its high-bandwidth memory (HBM) chips for data-intensive generative AI tasks, projected an adjusted gross margin lower than expected, attributing it to decreased profitability from consumer memory chip pricing. Despite a slight decline in shares in 2024, Micron's stock has surged over 13% this year as investors expect better consumer memory chip pricing and anticipate the company benefiting from its crucial role in AI supply chains.

Rosenblatt analysts flagged NAND Flash oversupply as a factor affecting margins due to oversupply in consumer memory chips caused by weak demand and aggressive purchasing during the pandemic. Micron's forecast for the third quarter anticipates an adjusted gross margin of around 36.5%, a slight decrease from the analysts' average estimate of 36.9%, signifying a 3 percentage point sequential drop. Micron's chief business officer, Sumit Sadana, acknowledged the challenging NAND industry environment and mentioned their efforts to reduce NAND production, resulting in underutilization and diminished margins.

Despite these challenges, demand for Micron's AI memory chips remains strong, with the company ramping up HBM production to meet the needs of major GPU market players like Nvidia. The company's third-quarter revenue is expected to exceed estimates due to the strength in AI-related products. Morningstar analysts identified high-bandwidth memory as a significant growth driver for Micron and highlighted the continued demand in AI and data center sectors.