As the fervor for AI investments cools abruptly, memory chip leader Micron Technology is becoming the focal point for Wall Street's attention.
In a report released Thursday, analysts from Trivariate Research wrote that Micron has become "the most important stock in the market," not only as a key player in the AI supply chain but also as a crucial indicator for gauging AI market sentiment and risk appetite.
The stock has fallen more than 30% from its June 22 high and continued to decline in pre-market trading on Friday.
However, in Trivariate's view, as the sole U.S. producer of a critical product for the AI supply chain, Micron's current valuation appears significantly low.
At the time of the report's release, Micron's share price was above $900, translating to a price-to-earnings ratio of less than 11 times normalized earnings per share. The stock has since fallen below $850, implying a further compression of its valuation multiple. Trivariate analysts stated, "This valuation is low for the sole U.S. producer of a critical product in the AI supply chain."
Market Concerns Over Peak Memory Prices
Despite its long-term logic being acknowledged, Micron's recent stock performance has faced clear pressure.
Data shows that since hitting a recent high on June 22, Micron's stock has corrected by approximately 30%, breaking below its 50-day moving average for the first time since April this year.
Simultaneously, the broader memory chip sector has weakened in tandem. Flash memory leader SanDisk fell over 12% on Thursday alone, and the Philadelphia Semiconductor Index (SOX) also saw a notable pullback. Since the index's high in late June, all 30 of its component stocks have experienced declines to varying degrees.
Market concerns primarily stem from the possibility that memory chip prices may be nearing a cyclical peak. Over the past year, a major driver of Micron's rapid profit growth has been the sustained rise in DRAM and NAND prices. Should prices enter a downward cycle, the company's profitability could similarly retreat.
Furthermore, a recent report indicated that AI cloud computing company CoreWeave is considering using financial derivatives to hedge against the risk of future declines in memory chip prices. Investors interpreted this news as a sign that major customers are beginning to preemptively guard against price drops, further intensifying market worries that the memory cycle has peaked.
Earnings Model Suggests Consensus May Be Underestimated
Despite this, Trivariate believes the current market concerns regarding Micron may be overblown.
The report notes that Micron's current stock price corresponds to a P/E ratio of less than 11 times (based on normalized earnings). For a company positioned at the heart of the AI supply chain with a leading competitive advantage, this valuation is not high.
To assess the company's future profitability, Trivariate modeled 10,000 potential scenarios for the AI cycle's development, covering various possibilities for industry peaks and downturns.
The model indicates that even if the memory market reverts to a traditional cycle and the industry adjustment period is longer than historical cycles, Micron's peak earnings per share could still reach $194. Under a more pessimistic scenario, the peak could be $156. The current market consensus estimate is around $178, which the firm believes remains conservative.
The analysts stated that as long as the company's profits do not decline rapidly and significantly after the peak, the current valuation remains attractive.
Memory Supply Remains Tight, AI Demand Continues to Support Industry
Besides Trivariate, Evercore ISI also maintains a relatively optimistic view on the memory industry.
The firm stated that based on supply chain checks and feedback from OEMs, tight supply conditions in the DRAM and NAND markets are expected to intensify further by the end of this year and could persist for most of next year. Against the backdrop of sustained demand growth from AI servers and high-performance computing, memory chip prices may not necessarily enter a rapid downward cycle in the near term.
Industry insiders believe the current market action is more about trading on expectations of a future cyclical peak rather than a significant deterioration in fundamentals.
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