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Memory chip maker Micron (MU) is doing its best impression of NVIDIA (NVDA), crushing Q2 EPS and revenue expectations while guiding Q3 EPS and revenue well above expectations, fueling a huge rally in the stock. While NVDA is the preeminent AI name, thanks to soaring demand for its Grace Hopper GH200 and H200 processors, MU's impressive beat-and-raise performance showed that it deserves a seat at the AI table, too.

• The main story for MU and its AI aspirations revolves around the emergence of high-bandwidth memory (HBM), a powerful new type of memory chip that uses less power than traditional memory that's used in tandem with GPUs. HBM is a key building block for AI data centers, and since HBM is far more complex than traditional DRAM or NAND chips, it is far less commoditized, commanding higher prices. 
• MU is emerging as a leader in the HBM market after launching its HBM3E chipset and ramping up production in Q2. In Q2, the company recognized its first revenue from HBM3E, kickstarting a growth catalyst that could play out over a number of years. Since HBM3E will be a component of NVDA's H200 Tensor Core GPU, MU's success will be linked to NVDA's -- and that's not a bad place to be. 
• It seems the only limiting factor will be the supply chain and MU's ability to meet the sky-high demand. Last night, MU stated that its HBM is sold out for CY24 and that the vast majority of its CY25 supply has already been allocated.
• Meanwhile, the inventory glut that had plagued the PC and smartphone markets has run its course. In fact, MU stated that it expects industry bit supply to be below demand for both DRAM and NAND in 2024. This favorable reversal in supply/demand dynamics is providing another boost to margins and profits. In Q2, non-GAAP gross margin soared to 20.0% from 0.8% in Q1, easily beating the company's guidance of 10.5-13.5%. Along with the 58% surge in revenue, the huge expansion of gross margin swung MU back into profitability after five consecutive quarters of losses.
• Although the PC and smartphone markets are much healthier now, MU isn't predicting a boom this year. For PCs, the company is forecasting unit volumes to increase by low-single-digits, while smartphone unit volumes in 2024 are on track to grow low-to-mid single digits. Importantly, though, MU expects new AI smartphones to utilize 50% more DRAM content compared to non-AI phones.

The main takeaway is that expectations were high heading into MU's Q2 earnings report, and the company not only met those lofty expectations, but it blew past them. MU may not be in the same league as NVDA when it comes to AI-based growth, but it's making a strong case that it's in the runner-up spot, which is just another way of saying more quarters like this may be on the horizon.