(Bloomberg) — The post-result selloff for Micron Technology Inc. was a fresh reminder to global investors about the risks inherent in betting on artificial intelligence chipmakers.
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Days after leading AI chipmaker Nvidia Corp. collapsed by nearly half a trillion dollars, shares of Micron fell about 8% in extended trading after the memory maker issued a forecast that fell short of high estimates. In a sign of the extreme volatility in AI-related stocks, the Micron news also prompted declines at South Korea’s two largest companies, Samsung Electronics Co. and SK Hynix Inc., as fellow suppliers of memory chips that fuel the AI supply chain.
Micron is one of several companies that have gotten a boost from the mania for AI-related stocks, as its high-bandwidth memory is a candidate for use alongside Nvidia’s industry-leading chips for training large language models. Shares had more than doubled in the year leading up to Wednesday’s report, but — even with guidance roughly in line with the average of analyst estimates — the company was punished for not outperforming high expectations.
“The market has completely unrealistic expectations as many names that far exceed expectations are still selling,” said Andrew Jackson, head of Japanese equity strategy at Ortus Advisors Pte in Singapore. “But I think the street is very aware of the fact that these American names are quite cooked. Too many paper hands chasing the quick, easy money.”
Momentum in the global AI frenzy took a hit earlier this week when Nvidia shares entered correction territory on Monday before rebounding. A global gauge for semiconductor stocks has fallen about 5% since hitting a record high earlier this month.
For companies like Micron, whose traditional output of providing memory for PCs, smartphones and more conventional data center uses is still recovering from a slump last year, this means a high degree of uncertainty for stock prices.
The US memory maker’s briefing fell short of what SK Hynix previously offered, when it announced that its HBM production capacity is largely sold out until 2025, said Tom Kang, director of Counterpoint Research. Micron lacks the dominant position in AI memory that SK Hynix has, or in the broader memory industry that Samsung has, he added.
“This brings a reality check for the AI sector, which looks vibrant,” Kang said.
The relentless rally of US megacaps, believed to benefit from AI, has pushed their shares to historically high valuations. Micron shares are priced at 4.5 times expected revenue over the next twelve months, compared to an average of 2.2 times over the past decade.
–With the help of Abhishek Vishnoi.
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