Why Artificial Intelligence (AI) Stock Micron Technologies Stumbled Thursday | The Motley Fool

Shares of Micron Technology (MU -7.12%) tumbled on Thursday, falling as much as 7.9%. As of 3:15 p.m. ET, it had recovered somewhat, though the stock was still down 5.9%.

The catalyst that sent the memory and storage chipmaker lower was the company’s quarterly financial report.

Robust results

For its fiscal 2024 third quarter (ended May 30), Micron generated revenue that surged 82% year over year to $6.8 billion, driving adjusted earnings per share (EPS) to $0.62, compared to a loss of $1.43 in the prior-year quarter.

Analysts’ consensus estimates were calling for revenue of $6.67 billion and adjusted EPS of $0.50, so Micron easily cleared both benchmarks.

The company noted that the balance between supply and demand continued to improve, which helped increase pricing power. The results also got a boost thanks to “robust artificial intelligence (AI) demand.” Record sales to data centers jumped more than 50% sequentially thanks to high-margin AI-related product categories, including high-bandwidth memory, high-capacity dual in-line memory modules, and data center solid-state drives.

That sounds good, so why is the stock down?

Since AI went viral early last year, AI-related stocks have been fetching a premium to their historical valuations, and Micron is no different. This is thanks to baked-in expectations of further gains to come. Unfortunately, the timing is sometimes difficult to predict, at least with any accuracy, and that’s what’s weighing on the stock today.

For the upcoming fiscal fourth quarter, management is guiding for revenue of $7.6 billion, which would represent growth of 90% year over year. While that’s certainly an enviable forecast, it came precisely in line with Wall Street’s consensus estimates, while investors were hoping for a beat and raise.

Micron is currently selling for roughly 52 times earnings and 126 times forward earnings, so investors had high — if not unrealistic — expectations headed into the company’s report. One quarter does not a year make, and management was likely being conservative. It’s important to remember that while the trajectory of AI is increasing, demand will come in fits and starts.

Furthermore, 90% year-over-year growth is nothing to sneeze at, so investors should focus on the long term and ignore today’s stock-price movement.