On December 18, a semiconductor company Micron Technology(NASDAQ: MU) reported earnings for its first quarter of fiscal 2025 (which ended Nov. 28) — and by all accounts, the report looked solid.
Micron's top line rose 85% year-over-year, driven largely by a boom data center a business that is undoubtedly benefiting from the artificial intelligence (AI) revolution. More importantly, the company's profit margins are expanding alongside accelerating revenues. 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, shares are up 18% and the current $85 share price is dangerously close to a 52-week low. What is happening here?
Below, I'll outline what drove the selloff in Micron stock and make a case for why I think now is the perfect time 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 gauge of what to expect in the next 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 suggests a top-line figure of $8.1 billion. The investment community saw this as abysmal, as it paled in comparison to Wall Street's expectations of $8.9 billion.
Moreover, the company's EPS guidance of $1.23 is significantly lower than the consensus estimate among analysts of $1.97. Given the weaker-than-expected outlook, it's no surprise to see investors sour on Micron stock.
Image source: Getty Images.
While Micron's guidance may seem uninspired, it's important for investors to zoom out and consider the bigger picture. If Micron achieves its target guidance of $7.9 billion in sales during Q2, this would imply a 36% year-over-year growth rate. Moreover, 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's growing revenue by the mid-30s and accelerating its earnings power to nearly double that rate.
In addition to the financial issues above, it is important for investors to understand Micron's position in the chip field. Micron develops storage and memory chips. Industry research suggests so trillions of dollars are expected to be invested in AI capital expenditure (capex) over the coming years. In theory, this subtly suggests that training and inference workloads for productive AI development are expected to become more sophisticated — thereby underscoring the need for better chipware.
Like new GPUs from Nvidia, Advanced Micro Devices, Amazon, Alphabet, Microsofta Meta Platforms comes to market, Micron is in a profitable position to seize the opportunity to increase demand for storage and memory chips. To me, the long-term thesis about 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 clear: Investors are underestimating Micron's potential relative to other opportunities in the chip space.
Micron's price-to-earnings (P/E) multiple of 12 hovers around its lowest levels in a year and pales in comparison to any of the company's peers. I think the selloff in Micron stock is unnecessary and I see the company's decline among the leading 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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Spatacco He has positions at 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.
