Micron Technology Inc. (NASDAQ:MU) experienced a significant decline in its share price following its recent financial results. This drop highlights the inherent risks in investing in AI-related companies. After Nvidia Corp. (NASDAQ:NVDA), the leading AI chipmaker, saw a nearly half-trillion-dollar decline, Micron shares dropped around 8% in extended trading due to a forecast that missed the highest estimates.
AI Expectations: Volatility in AI Stocks Reflects Market Realities
The sharp drop in Micron’s stock also impacted South Korea’s top memory chipmakers, Samsung Electronics Co. (KRX:005930) and SK Hynix Inc. (KRX:000660), emphasizing the volatility in AI-related stocks. Micron’s high-bandwidth memory, a potential component for Nvidia’s AI chips, had driven a surge in its stock price, doubling over the past year. However, even a forecast aligning with average analyst estimates failed to meet the market’s excessively high expectations.
Andrew Jackson, head of Japan equity strategy at Ortus Advisors Pte in Singapore, stated, “The market is holding totally unrealistic expectations. Many companies that beat street estimates significantly are still seeing selloffs. The market is aware that these US companies are overvalued, with too many investors chasing quick gains.”
Momentum in AI stocks had already been shaken earlier in the week when Nvidia shares entered correction territory before recovering. A global index tracking semiconductor shares dropped about 5% from its recent all-time high.
Reality Check for Memory Chipmakers
For companies like Micron, which are still recovering from last year’s downturn in memory supply for PCs, smartphones, and conventional data centers, the high volatility presents significant share price uncertainty. Unlike SK Hynix, which reported that its HBM production capacity is largely sold out through 2025, Micron lacks a dominant position in the AI memory market. Tom Kang, director at Counterpoint Research, remarked, “This serves as a reality check for the AI sector, which seems overly inflated.”
The surge in US megacap stocks benefiting from AI has led to historically high valuations. Micron shares are currently priced at 4.5 times projected sales over the next 12 months, compared to an average of 2.2 times over the past decade.