Morningstar Warns Of 30% Crash In AI Stocks, Is It Time To Sell Micron?

The post Morningstar Warns Of 30% Crash In AI Stocks, Is It Time To Sell Micron? appeared first on 24/7 Wall St..

Morningstar is warning investors to brace for a reckoning in AI stocks, with memory-chip names sitting on the biggest gains facing the most downside. In a Bloomberg TV segment, Morningstar director of research Lorraine Tan warned that a large slice of AI names could give back 20% to 30% before they become buyable again. For holders of Micron Technology (NASDAQ:MU), the poster child of the rally, that raises an obvious question: is it time to lighten up?

The rally that scared Morningstar

Memory has been the runaway trade of 2026. Micron is up 304.62% year to date and 838.82% over the past year, while SanDisk (NASDAQ:SNDK) has surged 857.84% YTD and Western Digital (NASDAQ:WDC) 271.05%. Semiconductor equipment maker Lam Research (Nasdaq: LRCX) has doubled, up 153.61%. Even AI bellwether NVIDIA (NASDAQ:NVDA), tame by comparison at 7.42% YTD, has ridden a 26.81% gain over the past year.

Tan told Bloomberg that “stocks are priced for perfection. Although valuations seem stretched, people are buying into the optimism.” Her sharper concern was the pace of the move: “The explosiveness of the returns you saw in the second quarter it is a bit scary in that sense because the market is extrapolating for the strong growth to continue through 2028. We have our doubts there. We expect spending to taper off.” Asian equities had reversed early Q3 gains, with the MSCI Asia index down slightly after posting its strongest quarter in 17 years.

The memory reckoning

Tan’s case rests on capacity. “The announcements from Samsung and SK Hynix, that will lead to what we think will be softer pricing. Essentially, the supply will catch up with demand. You will not see the same loftiness in growth rate on the pricing of memory chips, for example,” AI capex growth is expected to peak in 2026, with spending increases slowing materially through 2029.

That thesis hits Micron squarely. The company reported Q3 FY26 revenue of $41.46 billion, up 345.7% year over year, with non-GAAP EPS of $25.11 and GAAP gross margin of 84.6%. CEO Sanjay Mehrotra guided Q4 revenue to $50.0 billion and EPS to $31.00, framing multi-year Strategic Customer Agreements as cycle insulation (see the press release). SanDisk logged Datacenter revenue up 645% YoY to $1.47B, and Western Digital cleared 50% non-GAAP gross margin for the first time. Those are peak-cycle results, exactly the kind of loftiness Tan expects to normalize.

Micron currently trades at a trailing P/E of 26 and a forward P/E of 7. The consensus analyst target is $1,410.45, with 39 buy or strong-buy ratings against just 1 sell. Sell-side positioning runs directly counter to Tan’s caution.

Equipment, foundries, and the consumer risk

Lam Research is the pick-and-shovel play most levered to Samsung and SK Hynix capex. Q3 FY26 revenue reached $5.84 billion (+23.8% YoY), though shares trade at a trailing P/E of 82 and forward P/E of 55. If capex tapers after 2026, the multiple has room to compress.

Tan named Taiwan Semiconductor (NYSE:TSM) among quality survivors she remains constructive on. TSMC reported May revenue of NT$416.98B, up 30.1% YoY, and CEO C.C. Wei is targeting more than 30% full-year revenue growth. Shares are up 57.94% YTD, a fraction of the memory move.

Tan flagged a second risk: consumer demand destruction feeding back into chips. “If you are in consumer or what I’m saying is, I think the demand for AI Services will remain relatively strong. At the end of the day, if the consumer says I’m not going to buy this or that good, I think that will blow through to the other segments of the industries that rely on chips.”

So is it time to sell Micron?

Tan did not name Micron on Bloomberg, but her framing fits: “It could be big for some stocks that have gone up double, triple, whatever in the past couple months. We expect 20, 30% correction for a good percentage of the names we cover before they come into areas we think would be worth buying again.” She sees opportunity on the other side of that reset, and Micron’s forward P/E of 7 assumes current earnings power holds. Investors weighing that call should watch Samsung and SK Hynix supply additions, HBM4 pricing, and hyperscaler capex guidance into 2027.

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