Why Micron Stock Just Dropped Again
Key Points
Chinese competitor ChangXin Memory Technologies made its public debut on Monday.
Investors are growing skeptical of big tech's massive AI spending.
The Federal Reserve's upcoming rate decision adds another layer of uncertainty.
Micron Technology (NASDAQ: MU) stock fell 9% as of 2:40 p.m. ET on Tuesday. The S&P 500 was up 0.3% while the Nasdaq Composite slipped 0.1%.
Micron, the memory chipmaker, is caught up in a multi-day chip-sector sell-off. Two main factors are driving it: new worries that a Chinese competitor will push memory prices down, and a broader loss of confidence in AI spending.
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Chip stocks around the globe were hit
A sell-off in Asia and Europe reached U.S. markets today, with memory and storage stocks taking the worst of it.
Chinese memory maker ChangXin Memory Technologies completed its initial public offering in Shanghai on Monday, renewing fears that Chinese firms will undercut Korean and U.S.-based chipmakers and weigh on earnings.
AI spending continues to grow
It's not just memory, however, investors are losing patience with the spending habits of big tech hyperscalers like Alphabet, which raised its capex guidance once again when it reported earnings just days ago.
The market is growing wary of the investment in AI, given the scale of the spend and the uncertainty of seeing a return.
The Fed's decision looms
Image source: White House
There's another wrinkle weighing on stocks today: the Federal Reserve will announce its next rate decision tomorrow, and some think the Fed could surprise the market with a hike. Frank Flight of Citadel Securities said in a research note that "the market may once again be underestimating the extent of the hawkish shift at the Fed" and that a hike may be in store.
The bottom line
While Micron has been blowing past earnings expectations and growing at a record pace, I think investors have gotten ahead of themselves. I would wait for the stock to come back to earth.
Johnny Rice 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.