Shares of Micron Technology, a key player in the semiconductor industry, dropped on Thursday, impacting other chip stocks as well. This decline suggests that the expectations for chip stocks in the artificial intelligence sector have increased significantly. Micron’s shares fell by 3.7% in early trading despite having doubled in value over the past year. Similarly, Nvidia, Intel, and Qualcomm also saw declines in their stock prices.
Although Micron exceeded Wall Street’s earnings forecast for the May quarter, it fell short of unofficial estimates, referred to as “whisper numbers,” which were higher than what was communicated to clients. This disappointment is likely due to the high expectations for growth in the AI sector, where Micron plays a significant role as a memory chip provider. Memory chips, particularly high-bandwidth memory (HBM) chips, are crucial components for AI accelerators, with Micron being one of the few companies producing them along with competitors from South Korea.
Micron reported significant revenue growth in data center demand, driven by AI applications, with HBM chips contributing over $100 million in revenue for the quarter. Despite this impressive performance, the company seemingly failed to meet inflated expectations. The semiconductor sector, which has outperformed software companies in the past year, is now facing concerns about overvaluation of hardware businesses, leading to a downward trend in stock prices.
Wall Street analysts are generally optimistic about Micron and the AI chip trend, with Piper Sandler analyst Harsh Kumar raising the price target for Micron to $150 and maintaining an overweight rating on the stock. The market conditions are expected to remain favorable for Micron, with increasing demand and limited supply projected to continue at least until 2025.
Overall, the decline in Micron’s stock price reflects the growing pressure on chip stocks to meet heightened expectations in the AI sector. Despite strong performance in the data center segment and revenue growth from HBM chips, Micron fell short of analyst estimates, signaling a shift in investor sentiment towards semiconductor stocks.
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