Is Micron severely undervalued in the AI chip cycle?

Storage chip manufacturer Micron has recently become the “big loser” in the market - Nvidia's financial report set a new record, resulting in Micron falling 10% in two days. Why? The market is beginning to worry about the sustainability of spending on generative AI.

But there is a detail worth noting here: Micron uses a “mining tool” business model. It does not make money like applications such as ChatGPT (OpenAI lost 1.15 billion in a single quarter), but sells DRAM and NAND chips to data centers. In other words, regardless of whether AI applications can ultimately be profitable, the storage chip market required for training these large models will not collapse in the short term.

Interestingly, the CEO of Chinese chip manufacturer SMIC warned that the expansion of AI data centers could lead to a global shortage of storage chips. Once established, Micron can raise prices for high-end AI chips while also increasing quotes to mobile phone and automotive manufacturers.

Key Data: Micron's forward P/E is only 14, while Nvidia is 27 and AMD is 36. In the AI infrastructure sector, this valuation is indeed absurdly cheap. In the next 3 years, this storage giant may profit from market panic.