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When Elon Musk talks, investors tend to listen up. Whether he's discussing autonomous vehicles, orbital data centers, or the future of artificial intelligence (AI), Musk has an uncanny ability to draw attention to technologies that could reshape entire economies.
His latest observation was surprisingly simple. When responding to a discussion on X (formerly Twitter) about shrinking generative models to operate continuously on smartphones and other devices, Musk wrote, "Problem is RAM supply."
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Those four words highlight an increasingly important challenge facing the AI industry, and they are particularly encouraging for Micron Technology (NASDAQ: MU) shareholders.
For years, much of the AI narrative revolved around Nvidia GPUs and the enormous data centers required to train sophisticated models. Now, another opportunity is emerging. Instead of relying exclusively on cloud-based computing, AI developers are compressing model sizes so they can run directly on smartphones, laptops, vehicles, and other connected devices. This is commonly referred to as edge AI.
Running AI locally can reduce latency, improve privacy, and enable applications to operate without constant internet access. However, these models still require substantial memory. That's the issue Musk was addressing.
Random access memory (RAM) temporarily stores information that processors need to execute tasks. But even as AI models become smaller, continuously operating them still requires sufficient memory to accommodate certain parameters and data loads. Naturally, as these applications become more sophisticated, their memory requirements could increase. This is an interesting conundrum for Micron, which manufactures DRAM, including low-power memory for smartphones and high bandwidth memory (HBM) used alongside AI accelerators.
Micron is already benefiting from the enormous imbalance between memory supply and demand. During its fiscal fourth quarter, revenue surged 379% year over year to $54.2 billion. Meanwhile, operating income reached approximately $43.7 billion, compared with just $3.7 billion during the same period last year.
MU Operating Income Before Depreciation Amortization (OIBDA) (Annual) data by YCharts
These results reflect more than selling additional memory chips. This growth shows how Micron has gained substantial pricing power as customers compete for the limited DRAM and NAND supply. During the fourth quarter, Micron's gross margin reached 87% -- demonstrating just how favorable industry conditions have become for the memory supplier.
Management believes the memory shortage isn't ending anytime soon. During its September earnings call, Micron indicated that memory supply constraints should persist through 2027 and 2028. The company also guided approximately $61.5 billion in fiscal first-quarter revenue, underscoring that its extraordinary momentum could continue. Musk's comment regarding edge AI added another source of demand alongside hyperscaler infrastructure spending going into next year.
Micron is positioned to benefit from multiple AI tailwinds simultaneously. Cloud computing requires HBM and server DRAM. Smartphones and personal computers increasingly require advanced low-power memory. Autonomous vehicles and robotics introduce additional opportunities in the world of physical AI.
Each application is memory-intensive, yet constrained manufacturing capacity gives suppliers leverage when negotiating prices. If demand continues exceeding supply, Micron should be able to sustain unusually strong profit margins and compound earnings well beyond this year.
In turn, this could encourage growth investors to rerate Micron stock and assign a higher valuation multiple, particularly if the company's long-term customer agreements make future revenue and profit more predictable.
Musk's observation that RAM supply is constraining edge AI reinforces the importance of memory throughout the AI ecosystem. Micron's extraordinary financial performance demonstrates how profitable a supply-constrained asset can become. While the company remains exposed to macro cycles around hyperscaler spending, I see Micron as an attractive long-term AI infrastructure investment, particularly given that AI memory shortages are expected to persist and next-generation use cases are moving into production.
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Adam Spatacco has positions in Nvidia. The Motley Fool has positions in and recommends Micron Technology and Nvidia. The Motley Fool has a disclosure policy.
Elon Musk Just Announced Fantastic News for Micron Shareholders was originally published by The Motley Fool
