US CHIPMAKER Micron Technology post-results sell-off sent a fresh reminder to global investors about the risks inherent in bets on artificial intelligence (AI) chipmakers.
Days after leading AI chipmaker Nvidia slumped by about US$500 billion, Micron shares fell about 8 per cent in extended trading, after the memory maker offered a forecast that fell short of the highest estimates.
Micron is among the companies that have gotten a lift from the rally around AI-related stocks, as its high-bandwidth memory (HBM) can be used alongside Nvidia’s chips for training large language models.
Its shares had more than doubled in the year prior to its Wednesday (Jun 26) report. However, the company was punished for not outperforming elevated expectations, even with an outlook that was almost in line with the average of analyst estimates.
“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,” Jackson added.
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The big jumps in market value appear vulnerable to rapid correction, as shown by Nvidia earlier this week when its shares entered correction territory on Monday before bouncing back.
A global gauge tracking semiconductor shares fell about 5 per cent since reaching an all-time high earlier this month.
Taiwan Semiconductor Manufacturing, which makes Nvidia’s most valuable chips and is considered critical for AI, has slipped more than 2 per cent since its Jun 19 high.
Micron’s news also triggered drops in South Korea’s two biggest companies, Samsung Electronics and SK Hynix. The memory makers, however, recouped their losses by Thursday’s close.
Businesses such as Micron, which traditionally supply memory for PCs, smartphones, as well as data centre use, are still recovering from a slump from the prior year. This means greater share price uncertainty for investors.
The US chipmaker fell short of what SK Hynix offered earlier, following the announcement that its HBM production capacity is largely sold out until 2025, said director at Counterpoint Research Tom Kang.
Micron lacks the dominant position in AI memory that SK Hynix enjoys or Samsung’s lead in the broader memory industry, he added.
“This brings a reality check to the AI sector, which looks bubblish,” Kang said.
The 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
