On December 18, the semiconductor company Micron technology(NASDAQ:MU) reported earnings for its first quarter of fiscal 2025 (ended Nov. 28) and by all indications, the report looked rock solid.
Micron’s top line soared 85% year over year, driven in large part by a booming data center business that is undoubtedly benefiting from the artificial intelligence (AI) revolution. More importantly, the company’s profit margins are widening along with accelerating revenue. Micron’s first-quarter net income of $1.9 billion is a huge improvement over the company’s loss of $1.2 billion during the same period in 2023.
However, since Micron’s earnings report in mid-December, the stock has plunged 18% and the current stock price of $85 is dangerously close to a 52-week low. What is happening here?
Below, I’ll describe what fueled the selloff in Micron stock and explain why I think now is a perfect opportunity to buy the dip in this unique semiconductor opportunity.
During an earnings call, companies sometimes issue financial guidance to give investors and analysts a rough idea of what to expect in the upcoming quarter.
In its first-quarter report, Micron issued guidance for revenue of $7.9 billion (plus or minus $200 million) and earnings per share (EPS) of $1.23 (plus or minus $0.10). The high end of Micron’s near-term revenue forecast implies a revenue figure of $8.1 billion. This was perceived as abysmal by the investment community, as it pales in comparison to Wall Street’s expectations of $8.9 billion.
Additionally, the company’s EPS guidance of $1.23 is materially lower than the consensus estimate among analysts of $1.97. Given the weaker-than-expected forecast, it’s not surprising to see investors sour on Micron stock.
Image source: Getty Images.
While Micron’s guidance may seem boring, it’s important for investors to step back and consider the bigger picture. If Micron were to hit its goal of $7.9 billion in sales during the second quarter, this would imply a 36% year-over-year growth rate. Furthermore, the EPS forecast of $1.23 implies 73% year-over-year growth.
When you consider those numbers, it’s hard to dismiss a company that is growing its revenue by around 30 percentage points and accelerating its earnings power at nearly twice that rate.
In addition to the financial aspects above, it is important for investors to understand Micron’s position in the chip space. Micron develops storage and memory chips. Industry research suggests that trillions of dollars are expected to be invested in AI capital expenditures (capex) in the coming years. In theory, this subtly implies that training and inference workloads for generative AI development are expected to become more sophisticated, thus underscoring the need for an improved chip.
Like new GPUs NVIDIA, Advanced Microdevices, Amazon, Alphabet, microsoftand Metaplatforms By coming to market, Micron is in a lucrative position to take advantage of the opportunity of growing demand for memory and storage chips. To me, the long-term thesis around Micron remains as compelling as ever.
While each of the companies in the set of peers below plays a different role in the semiconductor landscape, the trends on the chart make one thing very obvious: Investors are discounting Micron’s potential relative to other opportunities in the chip space.
MU PE (Forward) Ratio Data from YCharts
Micron’s forward price-to-earnings (P/E) multiple of 12 is hovering around its lowest levels in a year and pales in comparison to any of the company’s peers. I think the sell-off in Micron stock is unwarranted, and I see the company’s discount among top semiconductor stocks as an opportunity to pick up shares and prepare to hold them for the long term.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Alphabet executive Suzanne Frey is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Meta Platforms, Microsoft and Nvidia. The Motley Fool positions and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Should You Buy the Dip in Micron Stock Right Now? was originally published by The Motley Fool
