Micron (MU) stock has multiple strong positive and negative catalysts at this point, making its performance difficult to predict. On the positive side, the memory-chip maker should continue to benefit significantly in the near-to-medium term from the AI boom, and Bank of America recently asserted that MU should be boosted by the release of low-cost, open-source AI models made in China. Additionally, the valuation of MU stock remains low.
On the other hand, Alphabet's (GOOG) (GOOGL) technological breakthrough remains a long-term threat for MU, and investors have been unenthusiastic about Micron in recent weeks.
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www.barchart.com A Beneficiary of the AI Boom and Developments in China
Japanese bank Mizuho believes that Micron would be boosted by the proliferation of Alphabet's AI chips. The rapid proliferation of artificial intelligence (AI) is tremendously boosting Micron's top and bottom lines and will likely continue to do so going forward. The company's fiscal third-quarter results show that this trend very much remains intact, as its operating cash flow more than quadrupled year-over-year (YOY) to $41.46 billion, while its operating cash flow soared 5.5 times to $25.39 billion.
“Micron’s record fiscal Q3 financial results and even stronger outlook for Q4 reflect the strategic value of memory in the AI era,” said Sanjay Mehrotra, Chairman, President and CEO of Micron Technology, in the June 24 press release.
On July 21, Bank of America predicted that MU would get a lift from Chinese open AI models that are “up to 5-350x cheaper” than their Western counterparts. China's offerings “require the same or more memory (as Western models) as their model weights and active parameters increase,” the bank explained. The act of downloading open models also increases the demand for memory, it added. BofA, which also noted that Micron can resume buying back its shares around the end of this year, kept a $1,550 price target and a "Buy" rating on the stock.
In terms of valuation, the shares have a forward price-to-earnings of 13.58 times, which is very low given the company's tremendous growth.
A Big Threat From Alphabet and Unenthusiastic Investors
In March, Alphabet announced that it had developed TurboQuant, “a new compression method that it says could reduce the amount of memory required to run large language models by six times,” CNBC reported. LLMs are a widely used form of AI.
Still, a six-fold reduction in the memory requirements for LLMs could potentially cause Micron's growth to decelerate by large amounts in the medium-to-long term.
Meanwhile, on July 24, MU stock had sunk 7%, indicating that investors have become wary of the name. Reflecting this situation, Barchart's Technical Opinion function rates MU stock as a 56% Buy with a Weakest short-term outlook.
www.barchart.com On the date of publication, Larry Ramer did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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