Micron’s Stock Decline Amid Concerns Over AI Efficiency
Micron Technology Inc. (MU), a key player in the memory chip sector, witnessed a decline in its stock early on Tuesday as the memory market reacts to recent developments from Google. The tech giant’s launch of the TurboQuant compression algorithm aims to enhance the efficiency of AI models, sparking investor anxiety regarding diminished demand for high-bandwidth memory, a crucial component in AI data centres that are under continual strain due to the expanding size of AI models.
Despite widespread trepidation, Morgan Stanley analyst Joseph Moore, in a recent communication to investors, reassured that there is no evidence indicating a downturn in demand for memory or storage solutions. He highlighted that memory will remain pivotal in advancing agentic AI, which refers to AI systems capable of performing tasks either semi-autonomously or autonomously. For instance, an AI agent performing the task of navigating a website not only relies on the AI model’s processing power but also requires substantial memory capacity.
Moore expressed, “We believe that the best approach to capitalise on growth in general-purpose servers lies within memory.” He pointed out that while companies like AMD (AMD) and Intel (INTC) may experience some gains from rising prices, the impacts will be moderate. Moore added that these processor stocks carry higher expectations concerning prospects in areas like foundries for Intel and AI for AMD, which appear riskier. Consequently, he argued that investing in memory stocks at current valuations presents a more leveraged opportunity to gain from the momentum of agentic AI.
Micron stock price has decreased over 27% since the company reported robust second-quarter results on March 18, revealing an earnings per share (EPS) of $12.20 alongside revenues of $23.86 billion—representing an astounding 682% increase in EPS year-on-year and a 196% revenue surge. These results surpassed Wall Street’s expectations of $9 EPS against revenues of $19.7 billion. Moreover, Micron projected its Q3 revenues would exceed analyst forecasts.
Despite this positive outlook, Micron’s share prices have continually dwindled, negatively impacting the stocks of its rivals, including SK Hynix (000660.KS) and Samsung (005930.KS). Nevertheless, it is notable that all three companies’ stocks have shown substantial growth over the past year. Micron’s stock remains up 263%, while SK Hynix has surged by 323%, and Samsung’s shares have increased by 189%.
However, the escalating demand for memory in AI data centres has triggered a global shortage, resulting in a wider memory crisis. Analysts warn this could potentially pressure various sectors, including computer and smartphone manufacturers, to either hike prices on memory-dependent products or accept a decline in profit margins.
Summary: Micron’s stock has recently fallen due to concerns about diminishing demand for memory linked to Google’s new AI model efficiency algorithm. Morgan Stanley suggests that memory demand will persist, pointing to Micron’s continuing relevance in AI development and substantial past performance, despite recent stock declines.
