December 18, a semiconductor company Micron technology(NASDAQ: MU) announced earnings for the first quarter of fiscal 2025 (ended Nov. 28) — and by all accounts, the report looked solid.
Micron’s top line grew 85% year over year, fueled in large part by the boom data center a business that no doubt benefits from the artificial intelligence (AI) revolution. More importantly, the company’s profit margins are growing in tandem with accelerating revenue. Micron’s first-quarter net profit of $1.9 billion is a huge improvement over the company’s loss of $1.2 billion in the same period in 2023.
Even so, since Micron’s mid-December earnings report, the stock has fallen 18%, and the current share price of $85 is perilously close to a 52-week low. What’s going on here?
Below, I’ll outline what led to the selloff in Micron stock and argue why I think now is the perfect time to buy a stake in this unique semiconductor opportunity.
During earnings calls, companies will sometimes issue financial guidance to give investors and analysts a loose picture 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 short-term revenue forecast implies a top figure of $8.1 billion. The investment community saw it as a disaster because it paled in comparison to Wall Street’s expectations of $8.9 billion.
Furthermore, the company’s EPS guidance of $1.23 is significantly lower than the consensus estimate among analysts, which is $1.97. Given the weaker-than-expected forecast, it’s not surprising to see investors bear down on Micron stock.
Image source: Getty Images.
While Micron’s guidance may seem uninspiring, it’s important for investors to zoom out and consider the bigger picture. If Micron hits its guidance of $7.9 billion in sales during the second quarter, that would represent a 36% year-over-year growth rate. Furthermore, the EPS forecast of $1.23 implies annual growth of 73%.
When you consider those numbers, it’s hard to ignore a company that’s growing revenue at a mid-30 percentage point pace and accelerating its earnings power at nearly double that rate.
Along with the above financials, it’s important for investors to understand Micron’s position in the chip space. Micron develops storage and memory chips. Industry research suggests this billions of dollars of investment are expected in AI capital expenditure (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 improved chip hardware.
As a new GPU from Nvidia, Advanced micro devices, Amazon, Alphabet, Microsoftand Meta platform By entering the market, Micron is in a lucrative position to take advantage of the growing demand for storage and memory chips. For me, the long-term case around Micron remains as compelling as ever.
While each of the companies in the peer group below plays a different role in the semiconductor landscape, the trends in the chart make one thing abundantly clear: Investors are discounting Micron’s potential over other chip options.
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 other company. I think the selloff in Micron stock is unwarranted, and I see the company’s discount among leading semiconductor stocks as an opportunity to pick up shares and prepare for a long-term hold.
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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 Facebook spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, CEO of Alphabet, is a member of The Motley Fool’s board of directors. Adam Spatacco he 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.
