It’s hard to know what to do with those overheated and increasingly volatile shares of memory chip play Micron (NASDAQ:MU | MU Price Prediction) while the battle between the bulls and the bears becomes that much fiercer. On the one hand, the bulls have a pretty strong case for Micron still being a great value, considering AI-driven demand has been relentless.
Add the 5.6 times trailing price-to-earnings (P/E) multiple and the massive profits produced in this likely early (or maybe not?) structural buildout in AI data centers, and it certainly feels like the latest drop in Micron is more of a screaming buying opportunity than a cyclical peak. At this juncture, it’s hard to find that many sell-side analysts in the bear camp.
Some of the bigger bulls think Micron shares could be headed above $2,000 per share, as firms continue selling while commanding full pricing power. At the same time, Dr. Michael Burry is a notable short who’s targeted the U.S. memory juggernaut that briefly eclipsed a $1 trillion market cap before its recent correction.
It’s getting too hard to tell what’s up next for Micron
While it’s hard to call what the future holds for Micron as CapEx-heavy hyperscalers continue hoarding all the memory chips they can get their hands on, history suggests that the single-digit P/E multiple and unprecedented surge in demand might be illusory as memory looks to reach the latter innings of its cyclical ascent.
Now, it’s hard to tell if the cyclical top is in, but, at the end of the day, it’s harder to make a case that we’re still in the earlier innings, especially as some of the leading AI innovators look to find algorithmic solutions to a hardware bottleneck problem.
Even if the hyperscalers pouring hundreds of billions per year on CapEx are only going to keep raising the bar on their spending, my guess is that these firms — which aren’t just buying up chips but actually working on profoundly innovative solutions to advance AI’s capabilities while driving costs towards the floor — are going to find a way around what seems to be a perpetual memory shortage.
The incentive is there, as too is the willingness to experiment with new ways to run AI in a more memory-efficient manner.
The one thing that should give investors pause
Whether we’re talking about Alphabet‘s (NASDAQ:GOOG) and its TurboQuant breakthrough, which finds a clever way to shrink the VRAM footprint, or Apple‘s (NASDAQ:AAPL) sophisticated on-device techniques to power through its unprecedented DRAM shortage, it’s clear that firms are looking to find a way to make the most of what they have. It’s hard to know what to make of what algorithmic innovations could do to the longer-term demand for memory chips as the memory needs per query look to move lower from here.
In my view, this uncertainty makes a high-stakes name like Micron belong in the “too hard to understand” bucket, especially since there are so many forces at work, including Jevons’ Paradox, which ties higher efficiency to greater usage, which I’m sure the bulls would cite as a defense to the algorithmic breakthroughs firms are making to find their way around memory constraints.
Even if you’re a believer in AI and the great buildout being in its earlier days, the pace of innovation on the software side, I think, is going to be tough to keep up with as well. While I wouldn’t try to bet against the firm, as Burry is doing, I also wouldn’t be inclined to pound the table as hard as many analysts on Wall Street.
There are too many variables right here, even if you think Micron can capture even more share of the memory market from its two massive South Korean rivals at a time when so many firms are starting to really feel memory-starved. In a global market where just about everyone is looking for solutions to a difficult and costly problem that one can’t simply throw money at, I do think that underestimating the downside risks could prove quite costly with the memory plays at these heights.
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