By Arsheeya Bajwa

(Reuters) – Micron Technology shares rose 15 percent in premarket trading on Thursday, leading a rally in chip stocks after the company’s strong sales forecast signaled robust demand for semiconductors used to power generative AI technology.

The company, whose high-bandwidth memory (HBM) chips are used in Nvidia’s popular artificial intelligence processors, is expected to increase its market value by more than $17.5 billion.

Strong demand for HBM chips has enabled Micron to offset inventory build-ups in other areas, such as the PC market.

The company reported its best revenue growth in a decade in the fourth quarter ended August 29, and its forecast for the current period was well above Wall Street estimates.

The gains also pushed shares of Nvidia and Broadcom up more than 1.5 percent. Other chipmakers, including AMD and Intel, gained nearly 2.5 percent.

“The company (Micron) is benefiting from a broad and strong upturn in demand for memory chips, supported by AI-related demand,” Morningstar analysts said in a note.

The high prices for HBM chips are expected to benefit Micron’s gross margins, which had previously come under pressure from a costly expansion of HBM production capacity.

The company expects adjusted gross margin of approximately 39.5% for the first quarter ending in November, compared to estimates of 37.7%.

The company reported an adjusted gross margin of 36.5% in the fourth quarter, a big jump from negative 9.1% in the year-ago period.

Strong gross margins on the company’s HBM products contributed to higher overall margins, CEO Sanjay Mehrotra said Wednesday in a conference call following the release of the results.

The bar for Micron has been relatively low this earnings cycle, helping the company outperform, Morgan Stanley analysts said.

Following Micron’s latest earnings report in June, nine of 26 analysts had cut their estimates for first-quarter revenue, according to LSEG, fearing a weakening of HBM prices.

Micron has largely allayed these concerns, with Chief Financial Officer Matt Murphy attributing improved fourth-quarter profitability to higher prices.

(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Janane Venkatraman)