In 2022, the chip industry faced a chilling downturn, particularly impacting consumer electronics chips, with prices of certain chips cascading downwardsThis sudden decline in market conditions left global giants like Micron Technology (MU.US) in a precarious situation, suffering from significant losses both in performance and stock prices.

However, the tides began to turn as the industry gradually revived, accompanied by an explosion in artificial intelligence (AI) applicationsIt was during this transformative period that many semiconductor stocks, notably including Taiwan Semiconductor Manufacturing Company (TSMC), began to soar, with Micron Technology also witnessing its stock price reaching unprecedented heights.

Interestingly, China's semiconductor sector began to show signs of recovery as well, with foundries reporting a substantial increase in capacity utilization

Investors pondered what was driving Micron's stock to new heights amidst these shifts in the global landscape.

Micron Technology is recognized as a leading global supplier of advanced semiconductor solutionsThe company specializes in manufacturing and marketing DRAM, NAND flash memory, CMOS image sensors, and various semiconductor components, targeting cutting-edge computing, consumer products, networking, and mobile devicesDespite the challenges posed by the so-called "chip winter," which saw Micron's stock plunge nearly 50% in 2022, the company faced a series of financial struggles that began with consecutive losses starting from the first quarter of its 2023 fiscal year, which ends on August 31.

Nonetheless, Micron's stock began to recover in 2023, gradually climbing out of the financial pit it found itself stuck in, and entering 2024, the company experienced an unprecedented surge, surpassed previous peak valuations and set new records for its stock since its inception.

The surge in Micron's stock price is closely tied to the booming demand for AI technologies

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Notably, AI chips are designed to process vast amounts of parallel data, a central factor driving Nvidia’s (NVDA.US) GPU sales numbers to explodeThese AI chips require high processing power and ample bandwidth—stronger processing capabilities lead to faster data handling, while higher bandwidth allows for more data access per secondThe performance limits of AI chips hinge greatly on their architecture, while memory configurations determine bandwidth, forming a critical bottleneck in overall performance.

High Bandwidth Memory (HBM), a variant of GDDR memory, sits uniquely between on-chip caches and traditional DRAM, balancing bandwidth and capacityIt possesses three key advantages over other storage types: superior bandwidth, lower power consumption, and a smaller physical footprintHowever, one notable drawback has been HBM's considerably higher price point compared to standard DRAM, rendering it a somewhat awkward player in the market.

Yet, the rise of AI has offered a silver lining for HBM technology, as its three-dimensional stacking aligns seamlessly with the demands of large AI models

Around the world, the competitive landscape for HBM supply is dominated by three major players: SK Hynix, Samsung Electronics, and Micron Technology, holding market shares of 50%, 40%, and 10%, respectively, as of 2022.

Beyond the AI revolution, the overall recovery within the semiconductor industry has fueled the upward trajectory of Micron’s stock priceThe company reported a significant rebound in its financial performance, achieving profitability in the second quarter of the 2024 fiscal year, shaking off the gloom of previous losses.

Turning to domestic semiconductor industries, a similar pattern of recovery can be observedAs major global firms like Micron rebound from downturns, local Chinese semiconductor manufacturers have also started to show resilience.

Historically, many semiconductor stocks faced losses or declining performance throughout 2023; however, reports indicate significant improvements in the first quarter of 2024. Recently, TSMC has been rumored to raise prices for its advanced 3nm and 5nm processes and packaging services, while other institutions anticipate Hua Hong Semiconductor (01347.HK) might implement a price increase of 10% later this year to end a two-year downtrend.

Industry experts believe that the worst days for power semiconductors are behind us, with signs of stabilization appearing in foundry operations

Leading factories are achieving notable increases in capacity utilization, with some nearing maximum output, indicating potential for future price increases.

According to a report from CITIC Securities, steady growth is expected for the semiconductor market throughout the year, with initial price hikes for lower-end products likely to trickle up through the industryAdvancements in packaging technologies trend towards more sophisticated formats, with current leaders in the field poised to benefit considerably.

In a recent study highlighted by the institution, the demand surge for AI chips and the replenishing of electronic component inventories have painted a more positive picture for the industry in the latter half of the yearForecasts suggest a sequential revenue increase of 6.5% and 9.8% in the third and fourth quarters of 2023, respectively, signaling a stabilizing sector poised for growth.

Looking ahead, the semiconductor industry appears buoyed by several key factors: continuous investment in AI infrastructure by downstream clients, the resumption of demand for storage and electronic products, ongoing technological advancements, and shifts in major economies’ focus from enhancing production efficiencies to prioritizing supply chain security in the semiconductor domain.

Interestingly, Zhao Qi, the CEO of domestic foundry Integrated Circuit Technology (688469.SH), recently expressed an optimistic outlook for supply-demand dynamics in the latter half of the year, predicting a favorable balance although not strictly supply-constrained.

Additionally, stock trends for companies such as Hua Hong Semiconductor (01347.HK) and Northern Huachuang (002371.SZ) have shown significant growth recently, marking a thriving phase amid the sector's recovery.