Why Did Micron Stock Drop Today?

Key Points

• Samsung says the market for HBM memory for artificial intelligence (AI) functions is getting oversupplied.

• Samsung will cut prices on the most powerful HBM3E product in an attempt to win market share.

• Wells Fargo says this is bad news for Micron.

• 10 stocks we like better than Micron Technology ›

Shares of computer memory-maker Micron Technology (NASDAQ: MU) tumbled 5.2% through 11:25 a.m. ET Thursday -- but as far as I can tell, it wasn't anything Micron did to deserve this.

Instead, it was Samsung that's to blame.

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Image source: Getty Images.

What Samsung said about high-bandwidth memory (HBM)

As WCCFTech reports this morning, Samsung has just announced it's lowering prices on HBM3E (that's "High Bandwidth Memory 3 Enhanced," currently the most capable kind of HBM memory, designed for use in artificial intelligence and machine learning). Samsung explained that on the one hand, it hasn't been able to win as much HBM business from Nvidia (NASDAQ: NVDA) as it would like, while on the other hand, the HBM market seems oversupplied right now.

And the solution to both problems -- to help Samsung move product -- is to lower prices.

Is Micron stock a sell?

For Micron, this poses a problem -- because Micron also wants to sell HBM3E memory, and now Samsung has effectively declared a price war in the HBM market. In order to fight it, Micron will have to lower its own prices (hurting Micron's revenue and profit), or else it will lose market share to Samsung (also hurting Micron's revenue and profit!)

And if that sounds like a lose-lose proposition for Micron, that's because it is.

In a note on The Fly this morning, Wells Fargo warned that Samsung's action will "impact market prices," drying up much of the premium in prices between HBM3E and plain-vanilla DRAM memory, perhaps as early as H2 2025 (i.e., now).

Priced at just 20x trailing earnings, Micron stock may not look too expensive. But if profits are about to dry up as Samsung's price cuts take hold, Micron stock could look expensive in a hurry. Savvy investors might want to sell before that happens.

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Wells Fargo is an advertising partner of Motley Fool Money. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.