Momentum is great -- until it screeches to a halt. Both Micron Technology (MU 3.01%) and Microsoft (MSFT 0.20%) are good examples of this. Micron's shares were soaring but are now down roughly 15% below the high set earlier this month. Microsoft has lost more than 20% of its value since late October 2025.
Many forward-looking investors know that both of these artificial intelligence (AI) stocks could rebound strongly. Which is the better AI stock to buy on the dip: Micron or Microsoft?
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Micron: The law of supply and demand is on its side
The main knock against Micron is that it's a cyclical stock, and no one knows when the cycle will swing downward. That's a fair criticism. However, the reality is that the law of supply and demand is firmly on Micron's side for now -- and could be for a while to come.
Micron is one of three suppliers of high-bandwidth memory (HBM). AI applications require massive amounts of HBM. Micron revealed in its fiscal 2026 first-quarter update in December 2025 that its entire 2026 HBM supply had sold out.
The tremendous demand for HBM is expected to continue. Micron projects that the total addressable market for HBM will increase by a compound annual growth rate of around 40% over the next three years, with the market expanding from $35 billion in 2025 to $100 billion in 2028.
NASDAQ: MU
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HBM isn't the only positive for Micron, though. The demand for DRAM and NAND memory is also so strong that the company is negotiating multi-year supply deals. Such agreements haven't been commonplace in the past.
Micron's shares trade at only 12 times forward earnings. This low valuation is primarily due to investors' concerns about the company's cyclical business. However, it could set the stage for Micron's stock to soar again if the company delivers impressive revenue and earnings growth over the coming quarters.
Microsoft: A cloud king that's looking historically cheap
I doubt that anyone would categorize Microsoft as a value stock. However, this cloud king's valuation is historically cheap. Microsoft's earnings multiple is near its lowest level over the last 10 years.
Why has Microsoft's share price declined so much? There are several culprits. For one thing, the tech giant reported slightly lower-than-expected revenue growth for its Azure cloud unit in its latest quarterly update. Microsoft's plans to significantly boost capital expenditures this year also concerned some analysts.
Increased competition is another worry. The adoption of Microsoft 365 Copilot hasn't been as strong as some observers expected, while Alphabet's (GOOG 1.60%) (GOOGL 1.70%) Google Gemini and Anthropic's Claude AI models are generating positive buzz.
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On the other hand, Microsoft's business is booming on nearly every front. CEO Satya Nadella believes the future could be even brighter. He said in the fiscal 2026 first-quarter earnings call last month, "We are in the beginning phases of AI diffusion and its broad GDP impact. TAM [total addressable market] will grow substantially across every layer of the tech stack as this diffusion accelerates and spreads."
Agentic AI is one growth area that could especially benefit Microsoft. More than 80% of the Fortune 500 companies have already built AI agents using Microsoft's Copilot Studio and Agentbuilder tools. Nadella noted in the Q1 call, "As agents proliferate, every customer will need new ways to deploy, manage, and protect them. We believe this creates a major new category and significant growth opportunity for us."
Better AI stock to buy on the dip?
Which of these AI stocks is the better pick to buy on the dip? I think there are two answers.
Micron seems likely to deliver greater returns over the next 12 months, in my view. The jaw-dropping demand for memory, particularly HBM, should translate to tremendous profits for Micron. As earnings go, so go share prices (usually, anyway).
Over the long term, though, I suspect that Microsoft will be the bigger winner. The market dynamics still look great for Microsoft. Also, the law of supply and demand won't always be on Micron's side. Long-term investors have reaped rewards by buying Microsoft's shares on significant declines in the past. I predict they will be able to do so again.
