AI Chip Mania: Is the Boom About to Bust?

Investing in artificial intelligence hinges on the belief that 'this time is different,' especially for memory-chip makers. Micron Technology had its largest-ever loss just three years ago, yet is now expected to be the sixth-most profitable U.S. stock. It will make nearly $100 billion in the next year, exceeding Meta or Berkshire Hathaway. Micron and its competitors are major beneficiaries of soaring AI demand and high prices for the memory it produces. Like Samsung Electronics and SK Hynix, Micron is in a prime position in the chip cycle, boosting prices and profits. Micron contributed to Wall Street's upgrades of the S&P 500 earnings outlook, while the two Korean stocks have made their country's market the world's best-performing this year. Risk is embedded in Micron's valuation. History demonstrates how these cycles work. In the last cycle, Micron's stock peaked in early 2022, before halving that year. The stock bottomed out and doubled after losses were predicted. Similar patterns occurred in the mid-1980s and 1990s. When the stock peaked in 1984, it traded at 15 times forward earnings. In the 2018 cycle, the stock peaked at 5.5 times. Losses for investors who were fooled were vast. For now, any danger comes from demand, not supply. The biggest risk is the potential for AI technology to become more efficient in its use of memory. Large language models are an immature technology. Other risks apply to the whole AI supply chain. A final risk is that supercharged profits attract