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Key Points
Kimi AI is experiencing such high demand for its LLM that it's turning away new customers as it works to boost compute capacity.
Micron's memory chips are an essential product for companies that want enough AI capacity to scale and serve more customers.
Micron's valuation is a steal at current levels.
Micron Technology (NASDAQ: MU) stock has shed close to 29% of its value over the past month, but it has nothing to do with fundamentals. The tailwinds of the memory cycle remain intact, and each day further proves that AI demand is rising. The current dip presents a compelling buying opportunity that may not be around much longer.
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The Kimi AI news validates the AI thesis
Moonshot AI's large language model product Kimi AI recently shared an X post that enhanced Micron's bullish thesis. The Chinese company explained that it can no longer take on new customers for its open source LLM because it has run out of available compute. This decision was made to "protect the experience of existing subscribers."
Kimi is a chatbot with a similar setup to OpenAI's ChatGPT, where you can enter prompts or have AI agents perform tasks. Each of those prompts and AI agents requires compute from GPUs, and the GPUs need memory chips to remember everything and function more efficiently.
Kimi AI's news demonstrates parabolic demand for its services, which can only be met by buying more memory chips. This event isn't limited to Kimi AI. Other companies have more GPUs or are taking extra precautions to ensure they do not run out of compute. If other businesses don't want to turn away customers amid soaring demand, they will have to buy more Micron chips.
The valuation is a lot cheaper
Much has been made about Micron's low forward P/E ratio. However, the recent share price drop makes the current valuation look even more absurd. Micron trades at a forward P/E of only 5.5. Micron traded at a forward P/E of about 15 near the end of 2025.
The valuation alone leaves more room for upside, but Micron's tremendous financial growth shows that the forward P/E ratio can drop considerably even if the stock goes on another big rally. Revenue more than quadrupled year over year, and new profit margins almost touched 70% in the most recent quarter.
The continuation of high sequential growth shows that these results are the norm, rather than an anomaly. Micron has the qualities of a value stock and a growth stock wrapped into one.
Broader AI fears and a margin unwind are the two most likely factors behind the recent correction. It's not just Micron. Most AI stocks have been unpleasant to hold over the past few weeks, but once fundamentals prevail over current sentiment, Micron stock should be due for another rally.
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Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.
