Micron Fell 7% on Tuesday. Is This an Opportunity to Buy?
Key Points
Micron's stock is well below its 52-week high, but up more than 200% year-to-date.
The sell-off was sector-wide and based on macroeconomic and industry spending worries.
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A broad semiconductor sell-off was the driving factor behind Micron's (NASDAQ: MU) 7% fall on Tuesday, Aug. 18. Investor nerves regarding extraordinarily high AI spending among tech companies and rising Treasury yields hit memory chip manufacturers hard. Micron wasn't alone as rivals Sandisk and SK Hynix each dropped 9% or more. Western Digital also fell 5%. The question now is whether investors should see this as an opportunity to buy a rare dip.
The pullback this week puts Micron's stock nearly $300 below its 52-week high of $1,255. I really think this is a great opportunity for investors on the sidelines to buy in. First, the sell-off was a broader reaction, perhaps even an overreaction, to macroeconomic conditions and emotions. None of the decline was directly attributable to news regarding Micron's actual business.
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Secondly, Micron's fundamentals are incredibly strong right now. Revenue, as of its latest quarterly earnings, was more than $41 billion, almost double what it was the prior quarter. Management expects revenue to top $50 billion in the next earnings report. The company's gross margins are around 85%.
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Lastly, demand for memory chips still far exceeds supply, and that isn't going to change for at least the next few years. Micron's grip on the market, as well as its pricing power, makes it an extraordinarily important player in the industry.
In my opinion, there's still plenty of room to run in this current memory supercycle. Tuesday's precipitous drop offers investors a rare opportunity to purchase Micron's shares at a reasonable price.
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Catie Hogan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology and Western Digital. The Motley Fool has a disclosure policy.
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