Micron’s earnings report this week has again raised questions about the usefulness of the AI spending we are seeing from many tech companies. MU has cautioned about low demand for its memory chips, lowering the guidance for the upcoming quarter. If Micron sees a low demand for memory chips, where does that put AI chipmakers?
To understand the relationship between Micron’s memory chips and AI GPU makers, let’s first see where they fit in a data center. Micron makes DRAM and NAND storage devices, both of which are crucial in data storage in a data center. With the emergence of AI, the demand for these has gone up, in addition to the demand for High Bandwidth Memory (HBM). But this demand isn’t broad-based. It is mainly concentrated in AI applications. The demand in other segments like PC, smartphones, and other consumer devices has been down and is what’s weighing down the stock. This demand is responsible for over 50% of their revenue, so the stock plunge makes sense.
Let’s now see how Micron’s troubles impact Nvidia. Nvidia isn’t a memory manufacturer itself and designs the GPUs that go into data centers. If there is pressure on memory chip demand, it only means Nvidia can get these chips cheaper, thus helping them improve their margins. It also helps Nvidia make their products more affordable, ensuring even small businesses can adopt their tech. This wider adoption eventually strengthens Nvidia’s moat.
Broadcom on the other hand is more diverse and therefore doesn’t rely on memory chips as much as Nvidia. However, it still benefits in networking equipment and storage controller segments, where memory chips are an important component.
Despite the pessimism surrounding the Micron stock, traders would love to play the volatility until the demand settles in mid-2025. The company is the recipient of CHIPS ACT funding and its Idaho fab could come online within a year and a half. This is the first new memory manufacturing fab built in the US in 20 years. So Micron is bringing manufacturing back to the US and helping the country reduce reliance on foreign players for something as critical as semiconductors.
Micron is 20th on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 107 hedge fund portfolios held MU at the end of the third quarter which was 120 in the previous quarter. While we acknowledge the potential of MU as a leading investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as MU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
