Google's AI Breakthrough Sparks Jevons Paradox Debate for Micron and Sandisk

Alphabet's Google recently unveiled TurboQuant, an AI algorithm that significantly reduces memory usage and increases processing speed without sacrificing accuracy. This breakthrough has led to a 10% drop in Micron Technology's stock and a 14% decline in Sandisk Corporation's shares, as investors fear reduced demand for memory chips. However, some analysts are pointing to the Jevons paradox, an economic theory suggesting that increased efficiency in resource use can actually drive higher demand. The paradox, first described by William Stanley Jevons in 1865, posits that efficiency gains lower costs, which in turn can expand usage and consumption. In the context of Google's AI advancement, the reduced need for memory chips could lower their prices, potentially increasing adoption of AI technologies and, consequently, the demand for memory chips. Mizuho analyst Vijay Rakesh has reiterated his outperform ratings for both Micron and Sandisk, citing the Jevons paradox as a reason to view the development as a positive. He argues that performance improvements will drive further AI adoption, thus strengthening demand for memory components. Micron's stock, despite a recent decline, has surged over 500% in the past three years and currently trades at a 17 times earnings multiple with a PEG ratio of 0.04, indicating potential undervaluation. The company's Q3 outlook forecasts revenue of $33.5 billion, reflecting significant year-over-year and quarter-over-quarter growth.