Key Points

Investors show rising concern over the long-term viability of generative AI investments across the market.
Micron deals with notable stock swings, yet its modest valuation helps it stand apart from peers.
10 stocks we prefer over Micron Technology

The seasoned memory chip producer Micron Technology (NASDAQ: MU) rarely serves as a hub for rapid expansion or sharp price moves in the tech sector. Yet generative artificial intelligence (AI) shifts the picture entirely.

Excitement around this fresh prospect has lifted the firm's shares by 141 percent so far this year and lowered them 10 percent in recent days, as market participants lock in gains from a broad sector rally that some view as excessive. We examine what the coming three years may bring for the shares.

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Nvidia Results Spark Unease Across the Sector

Top artificial intelligence semiconductor firm Nvidia issued its third-quarter results on Nov. 19. As expected, performance proved strong, with sales rising 62 percent from the prior year to a peak of $57 billion driven by need for its advanced graphics processing units (GPUs) applied to AI model training and operation.

Even with these strong figures, the update triggered a steep drop in Nvidia shares and affected other sector names such as Micron, which shed about one tenth of its worth over two days.

At first glance, it seems odd for tech equities to fall after positive updates. Still, the move underscores growing market anxiety about current AI outlays. Data center operators keep investing heavily in equipment, yet these costs have not translated into gains on the end-user side of the business.

As one case, OpenAI's ChatGPT reportedly posted an $11.5 billion loss in the latest quarter. Losses also appear on the infrastructure front, where GPU-focused cloud provider CoreWeave recorded a net loss of $110.1 million in its latest reported period.

Will Micron Endure the Volatility?

Image source: Getty Images.

Even amid the excitement, AI carries risk since large language models (LLMs) lack proof of broad commercial success. A positive factor for Micron lies in its picks-and-shovels approach, which limits exposure to the greatest market unknowns. End-user firms bear the highest risk, hardware purchasers face moderate risk, and component makers face the lowest.

Micron operates squarely in the component segment. It provides advanced memory products such as DRAM and NAND that support storage of extensive LLM training datasets. The firm need not focus heavily on end-user developments, as any effects may take years to reach its order flow. It also maintains broad exposure, with memory products used across personal computers, mobile devices, and vehicles.

Memory demand has long followed cyclical patterns, with periods of surplus and shortage tied to extended manufacturing cycles. Growing data center needs may convert these patterns into a sustained growth phase for Micron.

Per the leader of major Chinese chip firm SMIC, a memory chip shortfall may emerge from swift AI data center expansion. Should this pattern hold, it may allow Micron to boost earnings through premium AI memory sales while raising prices in lower-margin areas such as mobile or auto.

Micron Stock Position in Three Years?

The outlook for the next three years appears positive for Micron, given its component-focused model that reduces generative AI exposure, alongside potential memory shortages that may drive extended hardware demand. Its low valuation adds appeal for buyers. At a forward price-to-earnings (P/E) ratio of only 14, the shares trade well below other AI infrastructure names such as Nvidia or AMD, which carry forward P/Es of 27 and 36.

Is Micron Technology a Sound $1,000 Investment Today?

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Will Ebiefung holds no stakes in the companies noted. The Motley Fool maintains positions in and endorses Advanced Micro Devices and Nvidia. The Motley Fool follows a disclosure policy.

The opinions stated here belong to the writer and may not match those of Nasdaq, Inc.