Micron is reportedly increasing production capacity of a more profitable memory offering that's in high demand due to AI

Micron is reportedly looking to double production capacity of HBM, a type of memory product that's faster and more power-efficient than traditional offerings.

Micron Technology and other memory companies need to walk a fine line between ensuring they can meet customer demand and not winding up with an oversupply of product if the market for their chips goes south.

But with supply so tight nowadays, an analyst sees "a major opportunity" for Micron to cash in by boosting its manufacturing capacity. And a new report suggests the company is doing just that.

Micron (MU) is reportedly spending money to double its production capacity of high-bandwidth memory by the end of the year, according to South Korean news site Electronic Times.

The company wants to catch up to production capacity at South Korea's SK Hynix (SKHY) and Samsung Electronics (KR:005930) so that it can improve supply for its 12-layer HBM4, the report said. That refers to the latest HBM generation that will serve chips such as Nvidia's (NVDA) Rubin graphics processing units. The HBM chips are made by stacking dynamic random-access memory chips, of which all three memory companies are top suppliers.

Memory-chip makers like Micron have spent years "stuck in relatively low-cost commodity memory making," Jack Gold, principal analyst at J.Gold Associates, told MarketWatch. Now that demand is "insatiable" for a premium product like HBM, "it presents a major opportunity for suppliers to cash in, since the margins are quite high," he said in emailed comments, referring to the portion of revenue that gets retained as profit.

Micron's output for HBM was between 40,000 and 50,000 chip wafers per month last year, Electronic Times reported. That means its reported plan to increase production by 60,000 wafers per month could put it at about 100,000 wafers per month for HBM by the end of the year, according to the publication.

Micron did not respond to MarketWatch's request for comment on the report.

Unlike general-purpose DRAM, HBM is a specialized type of memory that is faster and more power-efficient, making it ideal for artificial intelligence. Its capabilities have allowed memory-chip makers to charge higher prices for the product.

Micron's stock has soared as a result. The company's stock closed up 6.1% on Friday, and it has climbed 256% so far this year.

Meanwhile, AI-driven demand has led to a severe shortage of DRAM and other types of memory and storage, squeezing other areas of the market like consumer electronics. Although Micron, SK Hynix and Samsung have all announced plans to build out more fabrication capacity, it's still a multiyear process, Gold said. That has led them to move existing production toward HBM from lower-cost memory, he said, which has also contributed to the tight supply environment.

"Traditionally memory shortages don't last forever, and memory companies want to get the benefits while they can before the cycle swings to oversupply again," Gold said.

Demand is expected to continue to far outpace supply for the foreseeable future.

It's "already more than double the current supply and still growing very fast," D.A. Davidson managing director Gil Luria said. Therefore, even as Micron steps up its HBM production capacity, it "will likely not be enough to meet demand in that timeframe," he said in emailed comments.

-Britney Nguyen