Chipmaker Micron’s sell-off shows risk of sky-high AI expectations

HONG KONG - Micron Technology’s post-results sell-off sent a fresh reminder to global investors about the risks inherent in bets on artificial intelligence chipmakers.

Days after leading AI chipmaker Nvidia slumped by nearly half a trillion dollars, Micron shares fell about 8 per cent in extended trading on June 26 after the memory maker offered a forecast that fell short of the highest estimates. In a sign of the extreme volatility in AI-related stocks, Micron’s news also triggered drops in South Korea’s two biggest companies, Samsung Electronics and SK Hynix, as fellow memory chip providers feeding the AI supply chain.

Micron is one of the many companies that have gotten a lift 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. Its shares had more than doubled in the year prior to its June 26 report, but - even with an outlook roughly in line with the average of analyst estimates - the company was punished for not outperforming elevated expectations.

“The market is holding totally unrealistic expectations, as many names who are beating street estimates by a wide margin are still being sold down,” said Andrew Jackson, head of Japan equity strategy at Ortus Advisors in Singapore. “But I think the street is very well aware of the fact that these US names are pretty overcooked. Too many paper hands chasing the fast easy money.”

Momentum in the global AI frenzy took a hit earlier this week when Nvidia shares entered correction territory on June 24 before bouncing back. A global gauge tracking semiconductor shares fell about 5 per cent since reaching an all-time high earlier this month.

For businesses like Micron, whose traditional output of supplying memory for PCs, smartphones and more conventional data centre use is still recovering from a slump last year, that means a great degree of share price uncertainty.

The US memory maker’s briefing fell short of what SK Hynix offered earlier, when it announced that its HBM production capacity is largely sold out through 2025, said Tom Kang, director at Counterpoint Research. Micron lacks the dominant position in AI memory that SK Hynix enjoys or in the broader memory industry that Samsung has, he added.

“This brings a reality check to the AI sector, which looks bubblish,” Mr Kang said.

The relentless rally in US megacaps that are seen as benefiting from AI has pushed their shares to historically high valuations. Micron shares are priced at 4.5 times sales projected over the next 12 months, compared with an average of 2.2 times over the past 10 years. BLOOMBERG