Why Micron Stock Dropped on Thursday
Key PointsRising oil prices are adding to concerns about inflation and borrowing costs.
On Thursday, October 22, Micron Technology (MU) experienced a significant drop of 6.3%, with the broader market also taking a hit as oil prices climbed and concerns over AI spending loomed. The S&P 500 and Nasdaq Composite both declined by 1.2% and 2.6%, respectively. Brent crude oil prices surged past the $112 mark per barrel, a sharp increase from just $72 pre-war tensions.
This rise in oil prices is linked to heightened concerns over potential disruptions in energy supplies following attacks in Saudi Arabia. The ongoing conflict in the Middle East has disrupted oil and gas flows from the region, contributing to the rise in oil prices from their pre-conflict levels.
High oil prices can exacerbate inflation across the economy, leading to elevated interest rates and borrowing costs. Despite Micron Technology's Q3 report indicating no slowdown in capital expenditure (capex), investors remain wary due to higher financing pressures. These pressures could potentially hinder orders for the chipmaker, impacting its growth trajectory and stock price.
Meta Platforms' recent negative free cash flow (FCF) for the first time since 2012, coupled with its plans to raise money through a new class of stock, further raised questions about the sustainability of AI infrastructure investment. The shift towards equity financing rather than debt could signal lender skepticism or diminished confidence in the current valuation models.
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