Micron's biggest customer is secretly looking for a cheaper alternative

The share of Micron Technology has risen by more than 500 percent in a year. The huge demand for memory chips for artificial intelligence has helped the American company reach a market value of over $1 trillion. Nevertheless, there is a risk that can hurt, especially in the longer term.

Strikingly enough, that risk comes from Nvidia. The chip giant buys huge amounts of advanced memory, but at the same time explores how it can become less dependent on this expensive technology. This could significantly change the balance of power towards the end of this decade.

In its figures for the second quarter, Nvidia showed how important memory has become. Financial liabilities for future deliveries increased from $119 billion to $279 billion. A large part of this is related to the purchase of memory.

For Micron, that seems like excellent news at first glance. The company is a major producer of High Bandwidth Memory, better known as HBM. This high-quality memory plays an important role in powerful AI systems.

Yet there is a striking detail in Nvidia's planning. According to The Wall Street Journal, planned spending will decline sharply after the fiscal year 2029.

That does not automatically mean that Nvidia hardly needs memory after that. Purchase commitments are plans that can be adjusted or extended later. Still, it gives investors an important moment to keep an eye on.

A potentially greater risk lies in the way Nvidia designs future chips.

For the Rubin CPX chip, Nvidia initially wanted to use GDDR7 memory. This type of memory is used, among other things, in graphics cards for gamers and, according to the analysis provided, costs about one fifth of the much more expensive HBM per gigabyte.

Analyst Ming-Chi Kuo reported in August that Nvidia eventually chose HBM again. In addition, Rubin CPX would get 168 gigabytes of memory, compared to 288 gigabytes for the most powerful model.

This means that Nvidia will remain a customer for the time being for expensive HBM memory. At the same time, the earlier choice for GDDR7 shows that the company is looking for ways to use cheaper memory when maximum performance is not necessary.

At that very moment, Micron is investing heavily in additional production capacity. The company aims to double its monthly HBM production to about 100,000 wafers by the end of the year.

That makes sense as long as the demand for AI chips continues to grow rapidly. However, competition is also getting stronger.

According to research agency Counterpoint Research, Micron's market share in HBM fell to 18 percent in the second quarter. Meanwhile, Samsung doubled its share to 33 percent. The South Korean company already reached its first billion dollars in HBM sales within four months of the start of its deliveries.

In addition, Nvidia is not dependent on one supplier. CEO Jensen Huang confirmed in June that Samsung Electronics, SK Hynix and Micron have all been approved to supply HBM4 memory for the new Vera Rubin platform.

This is beneficial for Nvidia. The company can let multiple suppliers compete against each other and therefore has more room to negotiate prices and terms of delivery.

For Micron, that situation is less comfortable. The company invests billions in additional capacity, while Nvidia can choose from three major suppliers.

A direct turnaround does not yet seem to be an issue. Micron expects the shortage of memory chips to continue beyond 2027. SK Hynix CEO Kwak Noh-jung has even said that the scarcity can continue until 2030.

That supports Micron's short-term outlook. The big question is what happens when all new production capacity becomes available.

If Nvidia needs less expensive HBM memory per chip by then, while Samsung and SK Hynix also increase their production, the supply-demand ratio can change quickly. Nvidia will then have more bargaining power, while manufacturers will have to fill more capacity.

Two developments are therefore particularly important for investors. Micron's market share within HBM shows whether the company can defend its position against Samsung and SK Hynix. In addition, it will be important whether Nvidia ultimately extends its major purchase commitments to 2030 and beyond.

Micron's stock currently stands at around $975 and has become worth more than five times as much in twelve months. After such an exceptional increase, it does not take much to change growth expectations to allow investors to take a critical look at that valuation again.