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Shares of the memory processor company, Micron Technology (NASDAQ:MU), slid in October as investors worried about the high costs of AI infrastructure, increased competition in the memory chip market, and rising inflation.
The combination of all the news sent Micron's shares falling 16.9% in October, according to data provided by S&P Global Market Intelligence. But the sell-off is likely a knee-jerk reaction by investors and not a good indicator to avoid Micron stock. Here's why.
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Micron shareholders grew increasingly concerned last month that the company would soon face more competition from the Chinese memory maker ChangXin Memory Technologies, or CXMT. The company recently revealed advancements in its DRAM memory and said that it could begin shipping server memory by the end of this year.
But Micron holds 21% of the DRAM memory market, while CXMT has just 9%, and overcoming that gap will be difficult. Additionally, many analysts question whether CXMT could scale its memory production quickly enough to have an impact on Micron or its peers.
Adding to the downward pressure on Micron stock last month was a general negative sentiment toward AI stocks. Tech investors have become increasingly concerned that companies are spending too much on data center infrastructure and won't receive a good return on those investments.
That perspective sent many tech stocks tumbling in October, and Micron fell along with them. But while there are certainly legitimate concerns about overspending, some tech companies are already benefiting from the expansion of their AI infrastructure. Microsoft's Azure cloud sales rose 48% to $33.1 billion in the company's first quarter of fiscal 2027 (which ended Sept. 30) and Alphabet's Google Cloud revenue more than doubled in the third quarter of 2026 (which ended Sept. 30) to $30.7 billion.
And finally, investors were worried last month about how rising inflation could impact tech investments. The Consumer Price Index (CPI) rose by 3.7% in September, according to the Bureau of Labor Statistics, which was higher than expected.
Investors are concerned that persistent inflation will spur the Federal Reserve to continue raising interest rates, which would increase borrowing costs and potentially slow spending. If that happens, it could lead to reduced spending on AI infrastructure and hamper Micron's growth.
While it was a rough month for Micron and other tech stocks, it's still too early to call the end of AI infrastructure investments. And, even if some slowdown did occur, it's highly unlikely that it would dry up entirely.
The recent quarterly results from Alphabet and Microsoft are a good indicator that leading tech companies will continue to expand their AI infrastructure as long as their cloud sales continue to grow rapidly.
What's more, fellow memory-processor company SK Hynix recently reported a 379% increase in sales to $54.2 billion, and management said it has already sold 50% of its memory supply through 2027 and 2028. The company also highlighted that it expects the supply-and-demand imbalance to persist through 2030.
In short, demand for memory remains very high, and recent fears of a slowdown in spending haven't materialized yet. This means Micron shareholders should stay the course despite the recent share price declines.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Micron Technology, and Microsoft. The Motley Fool has a disclosure policy.
Why Micron Stock Fell 17% Last Month was originally published by The Motley Fool
