Micron Technology stock was dropping again early Thursday. The memory-chip maker is being hit by three separate pressures after a stunning run.
The shares were down 3.3% at $874.63 in early trading. That was set to add to an 8% loss the previous day and a 20% fall over the past month through Wednesday’s close.
Of course, the drop comes in the context of a nearly 700% increase over the past 12 months. Such gains have left shareholders extremely nervous about any signs of a shift in the cyclical memory-chip business.
First, as Barron’s has already described, Dutch semiconductor equipment maker ASML Holding said Wednesday that its extreme ultraviolet (EUV) lithography machines can produce memory chips more efficiently.
Micron’s Korean rivals SK Hynix and Samsung Electronics are both planning to use the next generation of ASML’s EUV machines, which will improve manufacturing volumes. Anything that can ease the shortage of memory chips is grabbing the market’s attention.
Second, there is the constant concern that Big Tech might pull back on artificial-intelligence spending or find a way to circumvent the need for expensive memory. That was sharpened this week when Reuters reported that cloud-computing company CoreWeave was exploring the use of ways to financially protect itself against a future drop in memory and storage prices, citing a person familiar with the matter.
To be clear, there was no indication that CoreWeave actually expects a drop in prices and most industry analysts forecast memory costs will keep increasing through at least 2027. CoreWeave declined to comment on the report. But even the hint of industry insiders preparing for a shift in memory pricing has investors on edge.
Third, the shares of Micron and other memory-chip companies have been driven up partly by the use of exchange-traded funds offering leveraged exposure. The leveraged ETFs own options, swaps, or other derivatives to enhance the daily moves—up or down—for the stock.
The issue is that leveraged ETFs amplify downward moves. Larger losses need even larger gains to get back to even, which is worsened by the fact leveraged ETFs must adjust their holdings at the end of each trading day to maintain their leverage ratio. Such rebalancing introduces a compounding effect that erodes returns.
“After peaking in June, the AUM [assets under management] of leveraged memory stock ETFs has shrunk by 34% while that of all leveraged equity ETFs has shrunk by 13%,” wrote J.P. Morgan analyst Nikolaos Panigirtzoglou in a research note Wednesday.
“Leveraged ETFs have become a bigger source of volatility for memory stocks, as their AUM ratio to the market cap of underlying stocks is three times higher for memory stocks than that of all equity ETFs,” he added.
All those factors may easily fade soon. Big Tech earnings could show increased AI spending, dispelling worries about supply-and-demand and weaker pricing, and investors might pull back on leverage.
Barron’s has argued Micron stock could double from its current levels as booming memory demand from AI companies moves it beyond its normal boom-and-bust cycle. The average price target across Wall Street analysts is around $1,579, according to FactSet.
“Expect hyperscalers to continue highlighting compute shortages this earnings season. Datacenter memory…remains the primary bottleneck, with prices expected to rise another +30% in 3Q,” wrote Daniel Morgan, a senior portfolio manager at Synovus Trust.
But for now, Micron stock is under a cloud.
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