Here's Why Micron Stock Fell 12% This Week
Key Points
Investors were spooked by a new Google compression algorithm that makes AI models more efficient and requires less memory.
Rising fears about a recession and higher inflation contributed to the pessimism.
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Micron Technology (NASDAQ: MU) shareholders have had a pretty rough week. Shares of the memory processor company have stumbled amid concerns that new technology from Alphabet's Google could lower demand for advanced memory processors.
Those fears came as Micron investors were already concerned about the company's rising capital expenditures and the market's general pessimism stemming from the U.S.'s war with Iran. Micron's stock is down 12% in the week to Thursday, 3:07 p.m. ET.
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More efficient AI model sparks fear of lower memory demand
Google Research announced this week that it had created a breakthrough artificial intelligence compression algorithm for large language models (LLMs), called TurboQuant. The company said the algorithm reduces the amount of memory an LLM needs by at least 6X.
More efficient AI models that require less memory than before understandably freaked out some Micron investors. But it might be all bad news. Some analysts believe Google's new compression algorithm could actually lead to more memory demand, with Ray Wang from SemiAnalysis telling CNBC that it's "hard to avoid higher usage of memory."
Micron shareholders don't appear ready for any optimistic take on the stock right now, though. They were already concerned about the company's $25 billion in capital expenditures planned for this year and how it could negatively impact Micron's margins. That fear came despite Micron's blockbuster second quarter, in which earnings per share of $12.20 beat Wall Street's $8.80 estimate, and revenue surged 196% to $23.9 billion.
Adding to the pessimism this week is the fact that some investors are getting increasingly worried about the economy. Yesterday, some economists increased their odds of a U.S. recession occurring over the next 12 to 18 months because of the U.S. war with Iran. Then today, a report from the Organization for Economic Cooperation and Development said the war and rising oil prices could cause U.S. inflation to reach 4.2% this year, which is far higher than the 2.7% the Federal Reserve has forecast.
Micron is growing too fast to ignore
Despite fears that Google's algorithm could slow memory demand and concerns about the economy, Micron just had an amazing quarter quarter, and there's no indication yet that AI infrastructure demand is cooling.
Big tech companies are collectively spending at least $650 billion in capital expenditures this year, much of which is going toward AI data center infrastructure. With Micron already a leader in memory processors and the company experiencing surging demand for its products, the company's future still looks very bright.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Micron Technology. The Motley Fool has a disclosure policy.
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