On Dec. 18, semiconductor company Micron Technology(NASDAQ: MU) reported earnings for its first quarter of fiscal 2025 (ended Nov. 28) — and by all accounts, the report looked rock solid.
Micron’s top line soared 85% year over year, driven in large part by a blossoming data center business that’s no doubt benefiting from the artificial intelligence (AI) revolution. More importantly, the company’s profit margins are widening in tandem with accelerating revenue. Micron’s first-quarter net income of $1.9 billion is a massive improvement over the company’s loss of $1.2 billion during the same period in 2023.
Nevertheless, since Micron’s earnings report in mid-December, shares have cratered by 18% and the current share price of $85 is dangerously close to a 52-week low. What’s going on here?
Below, I’ll outline what drove the sell-off in Micron stock and make a case for why I think now is a perfect opportunity to buy the dip in this unique semiconductor opportunity.
During an earnings call, companies will sometimes issue financial guidance to provide investors and analysts with a loose gauge of what to expect in the upcoming quarter.
In its Q1 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 top-line 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.
Furthermore, the company’s EPS guidance of $1.23 is materially lower than the consensus estimate among analysts, which sits at $1.97. Given the weaker-than-expected forecast, it’s not surprising to see investors souring on Micron stock.
Image source: Getty Images.
While Micron’s guidance might appear uninspiring, it’s important for investors to zoom out and consider the bigger picture. Should Micron achieve its target guidance of $7.9 billion in sales during Q2, this would imply a growth rate of 36% year over year. Furthermore, the EPS forecast of $1.23 implies year-over-year growth of 73%.
When you consider those figures, it’s hard to discount a business that is growing revenue by mid-30 percentage points and accelerating its earnings power by nearly double that rate.
In addition to the financials above, it’s important for investors to understand Micron’s position in the chip realm. Micron develops storage and memory chips. Industry research suggests that trillions of dollars are expected to be invested in AI capital expenditures (capex) over the coming years. In theory, this subtly implies that training and inferencing workloads for generative AI development are expected to become more sophisticated — thereby underscoring the need for enhanced chip ware.
As new GPUs from Nvidia, Advanced Micro Devices, Amazon, Alphabet, Microsoft, and Meta Platforms come to market, Micron sits in a lucrative position to seize on the opportunity for rising demand for storage and memory chips. To me, the long-term thesis surrounding Micron remains as compelling as ever.
While each of the companies in the peer set below plays a different role in the semiconductor landscape, the trends in the graph make one thing abundantly obvious: Investors are discounting Micron’s potential relative to other opportunities in the chip space.
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 leading semiconductor stocks as an opportunity to scoop up shares and prepare to hold for the long run.
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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, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, 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 has positions in 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.
