Weak memory demand has weighed heavily on Micron Technology (MU 5.01%) stock since the beginning of 2022, sending shares of the memory specialist down 37% over the past 15 months thanks to a sharp decline in its revenue and earnings. However, investors gave the company's latest results a big thumbs up thanks to the emergence of a generative artificial intelligence (AI), a massive catalyst that could supercharge its growth in the long run.

More recently AI grabbed the limelight thanks to the immense popularity of OpenAI's ChatGPT. The company designed a chatbot capable of writing poems, creating text, composing emails, and writing code and essays based on user prompts. ChatGPT's success and the ability of chatbots to disrupt multiple industries have triggered an AI arms race, with multiple companies committing to pouring billions of dollars into this market as they try to make the most of the next big tech trend.

There's plenty of reason for companies to enter the race and investors to be hyped; after all, Grand View Research forecasts 34% annual growth for the generative AI market through 2030. And Micron believes it is well-positioned to benefit from the secular growth opportunity in AI.

With that said, let's take closer look at this potential catalyst for Micron Technology.

Micron Technology sees generative AI as a big growth driver

On Micron's latest earnings conference call, CEO Sanjay Mehrotra pointed out that generative AI applications, which are dependent on large language models (LLMs), will "require significant amounts of memory and storage to operate." He added that the increase in the deployment of generative AI applications will lead to an increase in both training and inference workloads in data centers and end-user devices as well, thereby driving "significant growth in memory and storage consumption."

According to Mehrotra, "an AI server today can have as much as eight times the DRAM content of a regular server and up to three times the NAND content." Not surprisingly, the AI-powered storage market is expected to clock roughly 27% annual growth through 2031 and hit annual revenue of $162 billion, according to Allied Market Research.

What's more, Micron expects its total addressable market (TAM) to grow to record levels in 2025 and continue growing at a faster pace than the broader semiconductor market beyond that. The good part is that Micron is already taking steps to capitalize on this massive opportunity. The company has started shipping more of its Compute Express Link (CXL) dynamic random access memory (DRAM) samples to customers in the cloud, high-performance computing (HPC), and enterprise markets.

CXL-based DRAM modules allow servers to substantially improve storage capacity and accelerate data transfers that lead to a reduction in system latency, which is why they are considered ideal for AI, machine learning, and HPC workloads. This explains why CXL DRAM is expected to account for 31% of the DRAM used in servers by 2028, growing at an annual rate of more than 20% over the next five years.

All this indicates that AI could turn out to be the next big growth driver for memory market participants such as Micron Technology. Investors, however, may want to wait for a turnaround in Micron's fortunes before buying the stock, as the oversupply in the memory industry has taken a heavy toll on the company's business.

Investors should wait for a better time to buy

Micron Technology released its fiscal 2023 second-quarter results (for the three months ended March 2, 2023) on March 28. Its top line crashed 52% year over year to $3.7 billion. Weak memory pricing crushed the company's margins. Non-GAAP gross margin was down to negative 31% from a positive reading of roughly 48% in the prior-year period. Meanwhile, the adjusted operating margin also fell to negative 56% from a positive reading of 35% a year ago.

As a result, Micron swung to an adjusted net loss of $1.91 per share from a profit of $2.14 per share in the year-ago period. The chipmaker's outlook suggests that a recovery is still not in sight. It has guided for $3.7 billion in revenue and a loss of $1.58 per share in the current quarter. So, Micron's revenue is set to fall by more than half once again, compared to the year-ago period's reading of $8.6 billion. The company had reported earnings of $2.59 per share in the year-ago quarter, and that's going to be wiped out completely, as the guidance suggests.

Of course, Micron expects customers to start restocking inventories in the coming months, leading to an improvement in the demand-supply balance, but a turnaround is expected to arrive only in fiscal 2024. Micron is expected to report a 50% revenue decline in the ongoing fiscal year to $15.5 billion, along with a loss of $4.48 per share. Analysts anticipate a major improvement in the company's top and bottom lines from the next fiscal year.

Period Fiscal 2023 Fiscal 2024 Fiscal 2025
Revenue estimate (in billions) $15.5 $21.9 $28.7
Earnings per share estimate ($4.48) $0.61 $4.99

Source: YCharts.

Of course, the arrival of new catalysts, such as generative AI, could help accelerate Micron's turnaround, but it would be prudent for investors to wait for concrete signs that things are getting better. Until then, it would be a good idea for investors to add Micron Technology to their watchlists and follow it closely, as it could become a hot AI stock in the long run.