An analyst says Micron investors have gotten used to rapid growth but now have to reorient themselves around the idea that AI is more like a marathon Micron Technology’s stock has seen a tough stretch recently as investors question the sustainability of artificial-intelligence spending and financing. The fears aren’t exclusive to Micron , Stifel analyst Brian Chin told MarketWatch. But they nonetheless have investors wondering what could finally get one of the most notable AI stocks going again.
If demand slows down, memory is affected more than other components, because “it’s not just a volume or unit problem; it ends up being a pricing problem,” Wedbush analyst Matt Bryson told MarketWatch. In other words, Micron and its fellow memory providers have been able to charge high prices because demand is so strong, but customers won’t be willing to pay so much in a slower environment. Why humanoid robots are so hard to mass-produce Play video: Why humanoid robots are so hard to mass-produce In reality, any AI bubble is unlikely to burst immediately.
So we asked analysts what they’re saying to advise clients during this period of heightened anxiety but limited fundamental changes. Don’t Short Yourself offers weekly money tips to help you earn it, stack it and grow it. I would like to receive updates and special offers from Dow Jones and affiliates.
I can unsubscribe at any time. First, it’s worth thinking about how much longer the memory market can keep growing rapidly. While some investors are concerned about a negative inflection point in demand two quarters out, Chin said the reality could be more like two to three years.
If strong conditions can sustain that long, Micron’s earnings per share would be much higher than it is today, he added. That brings up the valuation point. There’s a camp that believes Micron’s stock can fetch a much higher multiple than its current mid-single-digit level, but Chin isn’t one of those.
Micron shares trade at about five times his estimates for forward earnings per share, but he doubts investors will value Micron more favorably for each dollar of profit it brings in. On the plus side, Micron’s notably low multiple doesn’t leave much space to compress, making the stock “somewhat defensive if earnings at least grind higher,” Chin said. **See more:**In the battle for AI supremacy, China is only six months behind the U.S. — which means it’s winning, says former Google CEO Ryuta Makino, an analyst at Gabelli Funds, told MarketWatch that Micron’s stock stacks up well on a relative basis. Shares are trading at a cheaper multiple than storage stocks, making Micron attractive, he said.
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