Micron says the AI party is far from over, but not all are celebrating

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Micron says the AI party is far from over, but not all are celebrating Published Thu, Jun 25 20264:02 PM EDTUpdated 2 Min Ago The bears may be ready for bed, but the AI party doesn't look to be ending anytime soon, as evidenced by Micron's quarterly earnings on Wednesday. But which stocks stand to gain the most depends on where they sit in the data center supply chain. Micron delivered a blowout quarter , with sales more than quadrupling to $41.46 billion from $9.3 billion a year ago, and beating analyst estimates of $36 billion. Adjusted earnings of $25.11 per share topped the $20.78 expected from analysts polled by LSEG. And the good times are still rolling. The maker of memory and storage chips is now guiding revenue for the current quarter of about $50 billion, up from just $11.3 billion a year ago, and well ahead of the roughly $43 billion expected by the Street. Positive indicators But it was the earnings conference call that really got investors going. Management got right to the point: supply of memory and flash storage won't catch up with demand for a long while. CEO Sanjay Mehrotra said demand for DRAM and NAND "significantly" exceeds supply and will "beyond calendar 2027 as a result of AI-driven demand across all segments, coupled with structural supply constraints." "Even as we expect industry supply to improve gradually in 2028, we currently do not have a line of sight as to when memory supply will be able to catch up with increasing demand," Mehrotra said, noting that growth in the memory supply is dependent on "greenfield" expansions, or projects that start from scratch, rather than brownfield fabs, which entail modifying or upgrading existing infrastructure. Contributing to Micron's inability to ramp supply to levels that meet demand are long lead times for fab construction, skilled worker shortages, complex regulatory dynamics, and the need for "enhanced energy infrastructure," Mehrotra said. A skilled worker shortage is not an easy bottleneck to address. Management further laid out how the company is shifting from a cyclical commodity business to a contract-driven supplier to the AI boom. Micron has signed 16 long-term agreements with several customers, including hyperscalers, automakers, and AI infrastructure companies, and is locking in sales for three to five years. This transformation is great for Micron shareholders, as it will provide smoother, more predictable sales and earnings, reducing Micron's risk of overinvestment. But it also signals to investors more broadly that Micron's customers agree with the dynamics at play and are willing to sign legally binding multi-year contracts as a result, a signal that should increase confidence in the near- to medium-term sustainability of the AI investment cycle currently driving so much of the market. The report and call propelled Micron shares up 16% on Thursday. But the positive vibes aren't extending to all companies tied to the AI buildout. Not all AI stocks ride along So what does all this mean for investors? It depends largely on where your investments are in the AI infrastructure supply chain. The biggest immediate winners are fellow memory and storage stocks, including SanDisk , Western Digital , and Seagate Technology . Samsung and SK Hynix were also up in Asia overnight, following Micron's results. Companies that are higher up the supply chain — such as suppliers of advanced materials — also benefit, as massive demand for memory chips means Micron has to order a whole lot more stuff to make them. That bodes well for Club holdings Qnity Electronics , which provides materials used in the manufacturing of semiconductors and electronics, and Linde , which supplies rare and noble gases to the industry. Qnity rose 5.4%, while Linde gained 1.62%. It's also welcome news for stocks that help meet data centers' insatiable demand for power. In the portfolio, that means GE Verona , which sells gas turbines; Eaton , which provides electrification and liquid-cooling solutions; and Dover , which also sells liquid-cooling solutions for data centers. Because Corning sells fiber-optic-based connectivity solutions for data centers and doesn't have to purchase memory for its own products, it benefits from the demand for ever-faster, more energy-efficient compute. We trimmed Corning earlier on Thursday, though, because the stock has had a massive move this week . On the flip side, companies that need to buy more memory — think of data center builders like Amazon , Microsoft , Alphabet , and Meta Platforms — are less thrilled by Micron's report. These stocks are out of favor for the moment, no matter how much you argue that the AI spending comes with a positive return on investment (ROI). That's why we're seeing the hyperscale players all down on Thursday, as