Micron’s sell-off highlights the risks of high AI forecasts

(Bloomberg) — Micron Technology Inc.’s selloff after its earnings sent a fresh reminder to global investors of the risks inherent in bets on artificial-intelligence chipmakers.

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Days after AI chipmaker Nvidia Corp. lost nearly half a trillion dollars in value, Micron shares fell about 8% in extended trading after the memory maker delivered a forecast that fell short of the highest estimates.

Micron is among the companies that have benefited from the AI-related stock craze, 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.

Big jumps in market value appear vulnerable to a quick correction, as Nvidia showed earlier this week when its 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. Taiwan Semiconductor Manufacturing Co., which makes Nvidia’s most valuable chips that are critical to artificial intelligence, has fallen more than 2% since its June 19 high.

The Micron news also sparked declines in South Korea’s two largest companies, Samsung Electronics and memory maker SK Hynix, although they recovered their losses by Thursday’s close. For these companies, whose traditional output of providing memory for PCs and smartphones and using traditional data centers is still recovering from last year’s recession, this means a greater degree of uncertainty in stock prices.

Tom Kang, director of Counterpoint Research, said the US chipmaker’s briefing fell short of what SK Hynix had provided earlier, when it announced that its HBM production capacity was largely sold out until 2025. He added that Micron lacks SK Hynix’s dominant position in AI memory or Samsung’s leadership in the broader memory industry.

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“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 and Tan Hoi An.

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