Micron drops 6% as memory costs spark broader tech selloff

Technology stocks closed sharply lower Friday, capping a volatile week as investors reassessed the AI trade because of rising costs, cooling IPO momentum, and questions over AI revenue sustainability.

Semiconductor stocks led a broad tech retreat Friday, with Micron dropping more than 6% and Western Digital losing over 7% as memory cost concerns rattled the AI trade.

"The market is starting to question whether the massive capital spending on AI infrastructure can translate into proportional revenue growth," said Mandeep Singh, Bloomberg Intelligence's global head of technology research.

The selloff swept across the semiconductor supply chain. Nvidia, AMD, Broadcom, Intel and Marvell all moved lower, while equipment makers Applied Materials and Lam Research each declined more than 3%. Qualcomm also retreated, giving back some of the previous session's gains after its forecast of $15 billion in new data center revenue. Apple raised prices on some products to offset surging memory costs, and Microsoft increased prices on its current-generation Xbox consoles, showing that higher component costs are being passed through to consumers.

The retreat marks a potential inflection point for the AI-driven rally that has powered broader market gains over the past year. A New York Times report of a potential delay to OpenAI's expected IPO added to the pressure, with the AI developer seen as a bellwether for the sector. If valuations become harder to justify, further de-rating of high-multiple tech stocks could weigh on major indices in coming weeks.

Memory chipmakers have been among the biggest beneficiaries of the artificial intelligence build-out. Micron's blowout third-quarter earnings, strong forecast and better-than-expected margins had reinforced the view that memory companies have both strong demand and pricing power. The company has also attempted to insulate itself from the boom-bust memory cycle by locking customers into long-term contracts. Sandisk and Western Digital, which also focus on memory and storage, bore the brunt of Friday's selloff with losses exceeding 7%.

The selloff raises broader questions about the AI trade that has driven much of the market's gains over the past year. Rising memory costs are squeezing margins for downstream hardware makers, while the capital spending required to build out AI infrastructure continues to escalate. The moves extended a week of heightened volatility for technology stocks as investors grappled with conflicting signals: strong earnings from individual AI beneficiaries offset by mounting evidence that rising component costs are starting to squeeze margins across the supply chain.

The reported delay to OpenAI's IPO adds another layer of uncertainty. The AI developer, whose ChatGPT product sparked the current wave of generative AI investment, is seen as a bellwether for the sector. A delayed listing could be interpreted as a sign that valuations are becoming harder to justify in a rising cost environment. The company had been widely expected to go public in what would have been one of the most anticipated IPOs of the year, and a delay could ripple through the tech IPO pipeline.

The selloff coincided with three factors: rising memory prices pressuring downstream margins, a reported delay to OpenAI's IPO that could signal cooling enthusiasm for AI valuations, and evolving US restrictions on advanced AI models that add regulatory uncertainty to an already complex outlook.

This article is for informational purposes only and does not constitute investment advice.