Why Micron Stock Keeps Falling?

Micron Technology (NASDAQ: MU) has been one of the hottest performers on the stock market over the past year, but its shares have witnessed a substantial pullback after reaching a 52-week high on June 25.

Specifically, Micron stock is down nearly 28% from its 52-week high. This steep slide in the memory specialist's shares is quite surprising when we consider that it reported incredible results toward the end of June, along with impressive guidance. Clearly, external factors are impacting this high-growth company.

Let's take a closer look at them and consider what investors can do with Micron stock following its pullback.

Image source: Micron Technology.

These factors have been pushing Micron stock down lately

While the fundamentals powering Micron's growth haven't changed, news that the company could now face competition from Chinese state-backed memory company ChangXin Memory Technologies, or CXMT, has spooked investors lately. CXMT recently went public in China, and it is worth noting that Apple has reportedly applied for permission to purchase memory from it.

Moreover, China is reportedly making advanced chipmaking equipment, which could threaten the dominance of South Korean and U.S.-based memory manufacturers, including Micron. At the same time, persistent concerns about the viability of the huge sums being spent by big tech companies on developing artificial intelligence (AI) infrastructure have also weighed on Micron stock.

So, Micron has been caught in a whirlpool of negative news lately, causing the stock to tumble. However, savvy investors should look past the noise and focus on the primary factor that has made Micron a multibagger investment over the past year or so -- the memory market's fundamentals.

Favorable memory demand-supply dynamics will help the stock regain its mojo

While the market may be having second thoughts about Micron amid intensifying competition and potential overspending on AI infrastructure, analysts remain bullish on its prospects. This is evidenced by the following chart, which shows that analysts have consistently increased their long-term earnings-per-share growth estimates for the company.

Data by YCharts

It is easy to see why that's the case. Memory demand significantly outpaces supply, primarily due to the massive memory needs of AI data centers, which require faster compute and large amounts of storage. SK Hynix projects that memory wafer demand will be 20% higher than supply until 2030, and the company also adds that the shortage could persist into the next decade.

So, even if Chinese memory manufacturers bring more supply to the market, undersupply is likely to persist. After all, shipments of personal computers and smartphones are taking a hit due to higher memory prices and limited supply, creating pent-up demand in these markets. So, Micron's addressable market remains robust, and that's precisely why the company's earnings growth is projected to remain strong over the long run.

So, savvy investors can consider using the recent pullback in Micron to buy more shares, as it trades at just 19.5 times earnings. The forward earnings multiple of 5.4 is even more attractive, indicating that Micron is extremely undervalued when the company's impressive growth potential is considered. All this makes this AI stock a no-brainer buy, especially given that it is showing signs of stepping on the gas again after an 18% pop on July 30.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Micron Technology. The Motley Fool has a disclosure policy.