Micron selloff puts the AI memory trade on the spot
Micron shares are down 30% from their June peak, but Trivariate analysts say the AI memory bellwether still looks inexpensive.
By Sal Moretti · Money Reporter
3 min read
Micron Technology’s slide has turned one of Wall Street’s hottest AI trades into a pressure test for the whole chip sector.
The memory-chip maker’s shares were down 6.6% on Thursday afternoon and have dropped 30% from their June 22 peak, according to MarketWatch. The move has rattled a market that had leaned on memory and other semiconductor winners for much of its first-half strength.
Trivariate Research analysts put Micron at the center of the action in a Thursday note, describing the company as the market’s most important stock because of its role as a stand-in for the AI cycle and investor appetite for risk.
The reason is straightforward: Micron makes memory chips used in the AI supply chain, and rising prices have helped drive a powerful jump in earnings per share. The worry now is whether that pricing strength is nearing its limit.
Analysts say the stock still looks cheap
Trivariate’s team argued that the selloff does not make Micron expensive. When the analysts published their note, the stock was trading above $900, which they said valued the shares at less than 11 times normalized earnings per share.
By Thursday afternoon, MarketWatch reported Micron had slipped below $850, pushing that multiple lower. Dow Jones Market Data said the stock closed below its 50-day moving average on Wednesday for the first time since April 7.
Trivariate ran 10,000 scenarios for Micron’s earnings per share through a future top and downturn in the AI cycle. In a case where the memory business reverts to commodity-like trading and the downturn unfolds at twice the historically slow pace, the analysts modeled peak EPS of $194. Their bear-case figure was $156.
The analysts said Wall Street’s consensus estimate of $178 in peak EPS may be too low compared with their modeled outcomes. They also said the shares look inexpensive if profits do not fall quickly and sharply after the peak.
Chip stocks feel the pain
Micron was not alone in the selloff. Sandisk, another NAND flash memory name, fell more than 12% on Thursday afternoon, according to MarketWatch. The PHLX Semiconductor Index was down about 5%.
The chip benchmark has been under pressure since reaching a record high of 14,634.72 on June 22. Dow Jones Market Data said all 30 components of the index have fallen since then, with Marvell Technology the weakest performer, down 36% from that date.
Only 13.3% of the index’s components were trading above their 50-day moving averages as of Thursday, Dow Jones Market Data said.
A Reuters report on Tuesday added to nerves around the memory trade. Reuters said AI neocloud company CoreWeave was considering the use of financial derivatives to protect itself against a possible future decline in memory and storage-chip prices.
Evercore ISI analyst Amit Daryanani said investors were likely reading that report as a signal that memory prices could be getting close to a top. Still, he said in a Wednesday note that supply limits for both dynamic random-access memory and NAND are likely to worsen late this year and continue through most of next year, based on supply chain checks and comments from original equipment manufacturers.
This story draws on original reporting from MarketWatch.