Artificial intelligence stocks have faced significant challenges over the summer following an impressive surge that began in late 2022. Notably, one prominent stock at the forefront of this AI revolution has plummeted by 43% from its peak in June. Despite this, many analysts believe that the recent decline is merely a temporary mid-cycle correction rather than the onset of a prolonged downturn for the semiconductor industry.
In particular, Micron Technology (NASDAQ: MU) has experienced extreme fluctuations this year. The stock saw nearly a twofold increase between January and early June before experiencing a correction post-earnings, which intensified during the summer months. Nonetheless, even after a 43% decline, Micron’s stock remains nearly 10% up year-to-date.
The volatility of Micron’s stock can be attributed to its role in manufacturing memory chips, specifically DRAM and NAND flash memory. This sector is characterized by its limited number of players and is heavily influenced by shifts in supply and demand dynamics. While traditional DRAM and NAND chips behave like commodities with fluctuating prices, the rise of AI applications necessitates a new kind of high-bandwidth memory (HBM). This advanced DRAM variant is much more complex to produce, allowing companies like Micron to wield greater pricing power.
Micron’s HBM3E products, which were introduced in the May quarter, are reported to have 30% lower power consumption compared to those of competitors. Management expects this new HBM line to generate substantial revenue, with estimates in the “multiple hundreds of millions” for the current quarter and even more in the upcoming fiscal year. Importantly, these HBM products promise improved profit margins, which could significantly enhance the overall financial performance of Micron.
While the demand for AI technologies appears resilient this year, Micron still derives a considerable portion of its revenue from traditional markets such as PCs and smartphones. Vendors had anticipated price hikes, leading them to stock up on memory chips earlier in 2024. As a result of diminished demand in the PC sector and underperformance in early orders for the AI-integrated iPhone 16, analysts have begun to reassess expectations for Micron’s non-HBM revenue streams, contributing to the recent stock decline.
However, a majority of Wall Street analysts suggest that the current downturn is a temporary phase within a larger cycle. Historical data reveals that memory chip cycles typically span six to eight quarters; given that the industry has only recently emerged from a brutal down period, a shift to another downturn seems premature. Analysts from firms such as UBS, Susquehanna, and Citigroup have expressed optimism, emphasizing that the recent stagnation in DRAM prices is likely a brief pause rather than a new trend.
Furthermore, projections for Micron suggest that the stock could potentially soar to $200 per share—more than double its current valuation—if the growth trajectory mirrors that of the robust 2017-2018 memory boom, which was fueled by the cloud computing wave. High-bandwidth memory is expected to catalyze a similar transformation as AI technologies continue to mature.
Despite a near-term slowdown due to high interest rates affecting consumer spending on smartphones and automobiles, there is hope on the horizon. With the Federal Reserve indicating forthcoming rate cuts, market experts anticipate a renewed willingness from consumers and businesses to invest, positioning companies like Micron for potential gains as 2024 unfolds and into 2025.
Investors eyeing Micron Technology should pay close attention to the company’s upcoming earnings call, which will provide critical insights into its performance and the state of the semiconductor market.
Micron Technology remains a focal point for investors looking to capitalize on the AI boom. While there’s been some turbulence, the stock’s long-term outlook, bolstered by innovations in memory technology, may lead to substantial opportunities for growth as the industry continues to evolve.