Singapore – The recent selloff of Micron Technology Inc. serves as a stark reminder to investors worldwide about the risks associated with investing in artificial intelligence chipmakers. Just days after Nvidia Corp., a leading AI chipmaker, saw a significant drop in market value, Micron also experienced an 8% decline in its shares following a forecast that fell short of expectations.
Micron, one of the companies benefiting from the AI stock frenzy, has seen substantial gains due to its high-bandwidth memory being considered for use alongside Nvidia’s top chips. Despite its shares more than doubling in the year leading up to its report, the company faced backlash for failing to exceed the elevated expectations set by analysts.
Experts like Andrew Jackson of Ortus Advisors Pte in Singapore have noted the unrealistic expectations set by the market, leading to a trend where even companies surpassing street estimates are facing sell-offs. The volatile nature of these AI-related stocks has been highlighted by recent market corrections, such as Nvidia entering correction territory earlier in the week before recovering.
The drop in Micron’s shares also had a ripple effect on South Korea’s top memory makers, Samsung Electronics Co. and SK Hynix Inc., emphasizing the uncertainty surrounding share prices for these businesses. While Micron’s position in the AI memory sector may not be as dominant as SK Hynix or Samsung, the industry as a whole is experiencing a reality check as valuations reach historic highs.
The surge in US megacap companies benefiting from AI has pushed share prices to unprecedented levels, raising concerns about overvaluation. Micron’s shares, priced at 4.5 times projected sales over the next 12 months, are significantly higher than the average over the past decade.
In conclusion, the recent events surrounding Micron serve as a cautionary tale for investors in the AI chip industry, highlighting the importance of managing expectations and understanding the risks associated with high-growth stocks. The market’s response to Micron’s forecast underscores the delicate balance between investor sentiment and company performance in the ever-evolving tech landscape.