Micron Technology is bouncing back from last week's selloff, shrugging off the news that memory-chip rival SK Hynix is expanding its work with major customer Nvidia.
Micron shares advanced nearly 10% to $949.28 on Monday, snapping a two-session losing streak. The stock slumped 13% on Friday alone, hit hard by a broader selloff in the chip sector that ate into its recent massive gains.
Shares have also been volatile as investors debate Micron's valuation. The chip maker trades at a notably low forward price-to-earnings ratio, a reflection of the memory industry's frequent boom-and-bust cycles. As of Friday, Micro was trading at 9.2 times forward earnings versus roughly 25 times for the tech-heavy Nasdaq Composite.
Though still a discounted valuation, the multiple has been expanding recently on confidence that the demands of artificial-intelligence hardware will lead to a so-called "supercycle" that boosts pricing power and lifts Wall Street's earnings forecasts.
One important factor in the cycle is competition, especially with South Korean rivals SK Hynix and Samsung Electronics. On Sunday, SK Hynix and leading chip maker Nvidia announced a "multiyear technology partnership" to jointly develop the next generation of memory for AI infrastructure.
Good news for SK Hynx has the potential to be bad news for Micron but there was no mention of the Korean becoming an exclusive supplier for Nvidia. That should reassure investors that Nvidia will continue to rely on Micron as well -- and perhaps inspire hopes of a similarly long-term relationship that can support memory chip prices into the future.
Nvidia CEO Jensen Huang said Friday that the company had certified Micron alongside SK Hynix and Samsung as providers of the latest design of high-bandwidth memory, known as HBM4.
So long as Nvidia continues to use all three suppliers and memory demand outstrips overall supply, Micron should resume its rally.