Micron (MU 1.23%) investors have had some serious whiplash over the past few months. Earlier this year, the stock set a new all-time high, capping off a massive rally as investors dove headfirst into the stock to take advantage of the memory chip shortage. Then, the stock crashed by around 30%. However, it is back at all-time highs right now. All of that happened within the past month, leaving some investors wondering what's going on with the stock.
There's a lot to unpack, but at the end of the day, I still think Micron can be a worthy investment in the artificial intelligence (AI) space.
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The memory chip shortage is real
The initial cause of Micron's stock price rally is the massive memory chip shortage. Micron informed investors that it can meet only half to two-thirds of high-bandwidth memory (HBM) demand over the medium term. That's a massive gap, which is causing memory chip prices to soar. Memory chips are more of a commodity than logic chips, as there is very little to differentiate one company's offering from another. As a result, when demand is high and supply is short, prices soar, leading to massive growth for Micron and its peers.
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Key Data Points
To add to the supply crunch, Micron estimates that the HBM market will rise from $35 billion in 2025 to $100 billion in 2028. That's basically a triple in three years, and that's difficult to keep up with. As a result, the memory chip shortage will likely continue for the foreseeable future.
Unless we don't need as much memory.
One announcement that caused Micron's stock price to crater was related to TurboQuant, which was introduced by Alphabet's Google Research on March 24. This algorithm allows generative AI developers to use only a sixth of the memory they previously used, and the market assumes that would solve the supply issue. However, that only helps with some portions of the AI model, and there is still a massive memory crunch overall. Micron's stock rallied back to all-time highs once the market figured out its growth thesis was still intact.
Micron will remain an excellent AI investment until the supply shortage is resolved. It's anyone's guess when that will occur -- it could be a few years. If it is, Micron's stock has massive upside, but you have to stay on top of it; the stock could sell off heavily once the supply shortage is solved.
