Is This Semiconductor Giant a True AI Stock?

The stock market had a relatively calm day on Wednesday, as investors are generally playing a waiting game to see how economic data comes in. The Nasdaq Composite (^IXIC 2.02%) had modest gains, but both the S&P 500 (^GSPC 1.02%) and Dow Jones Industrial Average (^DJI 0.40%) pulled back slightly on the day.

Data source: Yahoo! Finance.

A lot of investors have looked to the semiconductor industry to try to identify artificial intelligence (AI) stocks that could benefit from the adoption of the latest technological trends. However, some semiconductor companies have typically concentrated less on specialty chips and more on the common building blocks of more basic technology.

Micron Technology (MU 2.92%) reported its latest financial results after the closing bell, and investors seemed mildly pleased with what they saw without necessarily buying into the idea that the memory chip specialist will be a huge beneficiary of the AI trend. Read on to learn more about the details of Micron's report and its implications for other companies in the industry.

Micron takes a massive cyclical hit

Shares of Micron Technology were up almost 2% in after-hours trading on Wednesday. The maker of memory chips and other semiconductor products reported its results for its fiscal third quarter, which ended June 1.

The numbers weren't pretty, but they still surpassed relatively low expectations from investors following the stock. Revenue of $3.75 billion plunged 57% year over year, and Micron posted an adjusted net loss of $1.57 billion. That worked out to $1.43 per share, erasing a year-earlier profit from the company, and operating cash flow largely evaporated during the quarter as well, coming in at just $24 million.

Micron blamed some of its poor performance on the decision from the Cyberspace Administration of China, which said that the company's products posed a national security risk and that it wouldn't allow them to be sold to key Chinese institutions and enterprises.

Yet although CEO Sanjay Mehrotra believes that China's ban is slowing the company's recovery in the short run, Micron has long-term tailwinds from its legacy of technological leadership. Moreover, Micron noted that AI applications could help its competitive position, especially in relation to computing trends that require more memory-intensive operations.

Investors also seemed to be pleased with the outlook that management provided for the fiscal fourth quarter of 2023. The semiconductor maker thinks that revenue should come in between $3.8 billion and $4 billion for the quarter.

The company still expects to post a significant loss of between $1.12 and $1.26 per share, but the sequential improvement seemed to support the broader notion that cyclical trends working against Micron might finally have run their course.

Is Micron an AI stock?

Although AI excitement has helped the broader semiconductor industry, it's important to ask how much Micron stands to benefit from the trend. On one hand, large language models like ChatGPT require fast memory chips with high storage capacity, as they need to keep track of extensive amounts of data on which to base their conclusions. Mehrotra pointed out three months ago that AI servers have as much as eight times as much DRAM capacity and three times the NAND capacity of conventional servers.

If the expected hardware rush occurs, then Micron might indeed benefit from a cyclical surge in demand. Yet it isn't the only memory chip provider in the industry, and investors can count on its rivals making their own plays to capture market share in a fast-growing market.

Even with a nice rebound so far in 2023, Micron shares remain well below their highs from late 2021. AI might be the catalyst to bring the stock higher, but it could take time for a true cyclical rebound to become apparent in the company's financial numbers.