Group 1: Market Overview - US stocks experienced a rise before the market opened, driven by positive developments from Alibaba and Micron Technology, which bolstered expectations for an AI boom [1][3] - Nasdaq 100 futures increased by approximately 0.3%, while S&P 500 futures rose by 0.1%, indicating a slight recovery in the tech sector [1][2] - The major stock indexes had previously ended a winning streak, with the "Magnificent Seven" tech stocks facing losses [2] Group 2: Company Developments - Alibaba's stock surged over 9% in premarket trading after the company announced plans to increase its AI spending beyond the initial target of $50 billion, aligning with a global AI investment surge projected to reach $4 trillion [3][12] - Micron Technology reported stronger-than-expected quarterly earnings, contributing positively to the sentiment surrounding AI investments [3][5] - Micron's executives highlighted a growing demand for storage capabilities from large hyperscalers, predicting an increase in NAND SSD deployment in data centers by 2026, which is expected to improve industry conditions [5] Group 3: Economic Context - The Federal Reserve's cautious stance on interest rate cuts is influencing market sentiment, with Jerome Powell indicating that the Fed would proceed carefully, despite leaving the possibility for further easing open [4] - The market is awaiting the release of the Personal Consumption Expenditures index, which is the Fed's preferred inflation gauge, to assess inflation risks [4]

Financial Data and Key Metrics Changes - The company reported a gross margin above 50%, marking the highest level since mid-fiscal 2022, with DRAM margins also higher than that period [40][41] - The operating margin is the highest since November 2018, driven by improved market conditions and pricing [40][41] - The company expects second quarter gross margin to increase relative to the first quarter [42] Business Line Data and Key Metrics Changes - The NAND business is improving, with a focus on higher-value SSD products, although it remains below 2022 levels [40] - The company is transitioning from $13.8 billion in net capital expenditures in 2025 to approximately $18 billion in 2026, primarily for DRAM construction and equipment [13] - The company is exiting the managed NAND segment to concentrate on the data center market, which is expected to yield better ROI [11][87] Market Data and Key Metrics Changes - The demand for NAND SSDs in servers and data centers is expected to increase significantly in calendar 2026, driven by large hyperscalers needing more storage for AI deployments [8][9] - The average capacities for SSDs are anticipated to escalate rapidly, with high-capacity drives becoming more common in AI servers [54] - The DRAM industry is currently tight, and this is expected to further tighten in 2026 due to robust demand and limited supply growth [38] Company Strategy and Development Direction - The company aims to leverage its strong position in the data center SSD market and has announced a new product portfolio to capitalize on this [9] - The focus is on disciplined investments and maximizing ROI across its product portfolio, particularly in HBM and DRAM segments [17][20] - The company is being thoughtful about long-term agreements with customers, considering factors like U.S. manufacturing and potential tariff impacts [85][86] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about improving NAND industry conditions and the tightness in the DRAM market, which is expected to continue [9][40] - The company anticipates that the HBM business will have a higher through-cycle ROI compared to non-HBM DRAM [19][20] - Management highlighted the significant shift towards data center demand, which is driving pricing and profitability across all market segments [66] Other Important Information - The company is ramping its one-gamma DRAM production, which is expected to be the primary source of bit growth for fiscal 2026 [45] - The company has achieved significant improvements in HBM3E yields and is well-positioned for the HBM4 market [62][75] - The company is not providing specific margin details by product line but expects strong ROI capabilities for HBM products [47][48] Q&A Session Summary Question: State of the NAND industry and pricing expectations - Management indicated that the bits down in the current quarter are noise based on segment mix and that demand from hyperscalers will drive future growth [8][9] Question: CAPEX guidance and spending allocation - The company confirmed that the increase in CAPEX is primarily for DRAM construction and equipment, with little additional NAND spending [13][27] Question: HBM market share aspirations - Management expects to gain higher market share in HBM compared to previous years, driven by strong product performance and customer demand [17][24] Question: Gross margin outlook and contributing factors - Management noted that improving market conditions and pricing are key factors driving gross margin improvements, with expectations for continued growth [40][41] Question: Transitioning to one-gamma DRAM - The company is pleased with the one-gamma ramp and expects it to provide significant bit growth in fiscal 2026 [45] Question: Long-term agreements with customers - Management acknowledged interest in long-term agreements but emphasized the need for careful consideration of pricing and value creation [85][86] Question: Impact of exiting managed NAND on DRAM sales - Management confirmed that exiting managed NAND would not negatively impact DRAM sales, as strong relationships with customers remain intact [90]

Financial Data and Key Metrics Changes - The company reported a gross margin above 50%, the highest since mid-fiscal 2022, with operating margins also at their highest since November 2018 [32][33] - The company expects gross margins to improve further in the second quarter relative to the first quarter [33] Business Line Data and Key Metrics Changes - The NAND business is experiencing improved conditions, with expectations for tighter supply and increased demand driven by AI server deployments [6][7] - The DRAM segment is currently tight and expected to tighten further in 2026, contributing to improved pricing and margins [29][32] Market Data and Key Metrics Changes - The demand for high-capacity SSDs is increasing, with average capacities expected to escalate rapidly, particularly in AI servers [44] - The company anticipates significant growth in the data center segment, which has become a larger part of the total addressable market (TAM) and is driving overall profitability [54][55] Company Strategy and Development Direction - The company is focusing on enhancing its data center SSD business and has decided to exit the managed NAND market to improve overall ROI [9][71] - The strategy includes leveraging new product announcements and maintaining a strong competitive position in the data center SSD market [7][72] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand for NAND and DRAM products, particularly due to the needs of hyperscalers for AI applications [6][7] - The company is optimistic about its ability to capture market share in HBM and expects to see higher share in HBM compared to previous years [13][18] Other Important Information - The company is investing significantly in DRAM construction and equipment, with CAPEX guidance increasing from approximately $13.8 billion in 2025 to about $18 billion in 2026, primarily for DRAM [11][19] - The company is ramping up production of one-gamma DRAM, which is expected to be the primary source of bit growth for fiscal 2026 [36] Q&A Session Summary Question: State of the NAND industry and pricing outlook - Management indicated that the bits down in the current quarter are noise based on segment mix and that demand from hyperscalers will drive NAND industry improvement [6][7] Question: HBM market share aspirations - The company expects to gain market share in HBM and is confident in its competitive positioning for HBM4, anticipating higher share compared to HBM3 [13][18] Question: CAPEX guidance and spending allocation - The majority of the increased CAPEX is directed towards DRAM construction and equipment, with minimal additional NAND spending [11][19] Question: DRAM revenue breakdown and margin contributions - Management clarified that while they do not provide specific margin comparisons, they expect tightening in the DRAM market to improve pricing and margins across the portfolio [29][32] Question: Long-term agreements with customers - There is interest in long-term agreements, but management is being cautious due to various market factors, including U.S. manufacturing and tariff implications [69][70] Question: Impact of exiting managed NAND on smartphone customers - Management confirmed that while customers may not be pleased with the exit from managed NAND, the strong relationship in DRAM remains intact [75]