Mizuho Calls AI Chip Stocks 'Dirt Cheap' Following Micron Update

Semiconductor and memory stocks are "dirt cheap" and poised for significant free cash flow growth, according to an analyst at Mizuho, who advised investors to maintain an overweight position in the sector following Micron's (MU) latest financial update.

Micron Results Reinforce Bullish Outlook

In a note to clients, Mizuho TMT specialist Jordan Klein stated that the key takeaway from Micron's report is that supply conditions for memory chips are tight and expected to become even more constrained next year. The analyst believes this sets the stage for accelerating financial performance across the industry.

"MU and memory stocks are dirt cheap and the free cash flow will accelerate like no tomorrow," Klein wrote. He added that the update increases his confidence in the durability and upside for memory stocks, though he noted it was unlikely to sway skeptics of the AI-driven chip rally.

Broader Sector Implications

According to Mizuho, the positive outlook extends beyond memory to related sectors, including:

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• Semiconductor equipment makers
• Foundries
• Hardware manufacturers, particularly servers

Klein pointed to the strong performance of memory producers SK Hynix and Samsung in Korean trading as a positive indicator for the market. The note argued that nearly all chip stocks, with the exception of names like Astera Labs (ALAB), are inexpensive relative to their growth potential, especially as investor positioning has fallen from summer highs while fundamentals have improved.

Investor Positioning and Strategy

Klein identified semiconductor equipment and analog chipmakers as the "least-owned" parts of the sector, suggesting a potential opportunity. The firm recommended that investors add to equipment names in the near term and remain selective in the analog space.

Mizuho concluded by advising clients to "ignore the day-to-day noise," attributing recent volatility between chip and software stocks to systematic fund flows rather than a change in fundamental value.