(Bloomberg) — Micron Technology Inc.’s sell-off sent… Yet the results are a fresh reminder to global investors about the risks inherent in bets on AI chip makers.
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Days after leading artificial intelligence chip maker Nvidia Corp fell nearly half a trillion dollars, Micron shares fell about 8% in extended trading after the memory maker gave a forecast that fell short of its highest estimates. In a sign of extreme volatility in AI-related stocks, the Micron news also led to declines in South Korea’s two largest companies, Samsung Electronics Co. and SK Hynix Inc., where fellow memory chip providers feed into the AI supply chain.
Micron is one of several companies getting a boost from the AI-related stock frenzy, as its high-bandwidth memory is a candidate for use alongside Nvidia’s industry-leading chips to train large language models. Its shares had more than doubled in the year prior to its report on Wednesday, but — even with forecasts roughly in line with average analyst estimates — the company was penalized for not beating high expectations.
“The market is holding very unrealistic expectations, with many names that beat market estimates by a large margin still being shorted,” said Andrew Jackson, head of Japan equity strategy at Ortus Advisors Pte in Singapore. “But I think the Street is well aware of the fact that these American names are greatly overvalued. Too many paper hands chasing easy, quick money.
The momentum in the global AI craze took a hit earlier this week when Nvidia shares entered correction territory on Monday before bouncing back. A global index tracking semiconductor stocks has fallen about 5% since hitting an all-time high earlier this month.
For companies like Micron, whose traditional business of providing memory for computers, smartphones and traditional data centers is still recovering from last year’s slump, this means a great deal of uncertainty in stock prices.
Tom Kang, director of Counterpoint Research, said that the brief presented by the American memory maker did not live up to what SK Hynix presented earlier, when it announced that its HBM production capacity was almost completely sold until 2025. He added that the company Micron lacks the dominant position in the AI memory space that SK Hynix has or in the broader memory industry that Samsung has.
“This brings a reality check to the AI sector, which seems optimistic,” Kang said.
The continuing rise in giant US companies seen as benefiting from artificial intelligence has pushed their stocks to historically high valuations. Micron shares are priced at 4.5 times expected sales over the next 12 months, compared to an average of 2.2 times over the past 10 years.
–With assistance from Abhishek Vishnoi.
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