Micron's stock falls as investors wonder if the memory market is near the top

By Britney Nguyen

'Most investor feedback continues to point to a skittish AI tape,' one analyst says

Micron's stock fell Tuesday.

Micron Technology's stock fell hard on Tuesday as investors looked past a massive profit boom at memory rival Samsung Electronics.

Shares of Micron (MU) fell 4.7%, while Sandisk's stock (SNDK) lost 7.3% on Tuesday. Storage makers Western Digital (WDC) and Seagate Technology (STX) saw their shares fall 7.9% and 4.7%, respectively, following big gains on Monday.

Jefferies equities trading analyst Jeffrey Favuzza said "most investor feedback continues to point to a skittish [artificial-intelligence] tape, elevated expectations/bar," and underwhelming results - at least relative to the major recent appreciation in Samsung's stock (KR:005930).

Samsung's preliminary results did not offer investors insight into performance by business division, Favuzza said in a Tuesday note. Those details will come with Samsung's full report later this month.

Baird managing director Ted Mortonson said Tuesday's action reflected worries on Wall Street that the market is "now entering a phase where elasticity of demand is being impacted by massive component inflation," referring to rising prices for memory and storage chips due to the ongoing supply-demand imbalance. Those price increases are now hitting consumer and enterprise markets, he said in emailed comments.

Mortonson pointed to massive spending by hyperscalers and said that when the return on invested capital "degrades to the point where they can't pass on component prices," the memory cycle could pause until supply reaches parity with demand. That's not expected until 2028 or 2029, he added.

Apple (AAPL) said in June that it is planning to raise iPhone prices as the cost of memory chips continues to climb.

Samsung's South Korea-listed shares closed down 7% on Tuesday after the company reported preliminary second-quarter operating profits of 89.4 trillion won, or $58.5 billion, which was above the FactSet consensus for 87 trillion won. The company's preliminary revenue of 171 trillion won was only in line with estimates, however.

While operating profits were up by 19 times compared with the previous year, they were "only just ahead of expectations as opposed to Micron, which blew expectations away," said Richard Windsor, founder of research firm Radio Free Mobile.

Therefore, "the market is wondering whether or not we are at the top," he said in a Tuesday note.

In Windsor's view, the answer will be determined by continued demand for tokens, or the pieces of data processed and generated by AI models, as prices for them continue to rise.

"For as long as demand continues to greatly outstrip supply, then we do not have a problem, and the memory companies will continue to rise and the compute providers will continue to print cash," Windsor said.

-Britney Nguyen

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