Memory Chips Just Fell Into a Bear Market. Micron Is Down 30% From Its High Even as AI Demand Booms.

Micron Technology (NASDAQ: MU) trades about 30% below its 52-week high of $1,255 as of this writing, after memory stocks dragged the chip sector into a bear market this month. The sell-off has erased more than $400 billion of Micron's market value -- from a company that just guided for the biggest quarter in its history.

The whole chip complex is hurting. Global chip stocks have given up about $3.3 trillion of market value in about a month. But memory has taken the worst of it, with Micron and its Korean rivals Samsung and SK Hynix all down more than 20% from their highs.

The strange part? The underlying business has never been better.

Image source: Micron.

What the sell-off is pricing in

Micron's results for its fiscal third quarter (the period ended May 28) were extraordinary. Revenue more than quadrupled year over year to $41.5 billion, up from $9.3 billion, driven by surging memory demand from AI (artificial intelligence) data centers. The company's two data-center-focused segments produced $25.3 billion of that revenue, up from about $4.9 billion a year earlier. Non-GAAP (adjusted) gross margin reached 84.9%, up from 39% a year earlier, and adjusted earnings per share came in at $25.11. Adjusted free cash flow hit a record $18.3 billion.

And management expects more. Guidance calls for about $50 billion of revenue in the fiscal fourth quarter, up roughly 21% sequentially, with a gross margin near 86% and adjusted earnings per share of about $31.

So the sell-off isn't about the numbers. It's about how long numbers like these can last. Memory has always been a brutally cyclical business, and record margins have historically invited the same response: competitors add supply until prices crack. Investors appear to be betting that this quarter, or the next one, is the top of the cycle -- and that today's margins won't last.

The valuation shows just how much pessimism is baked in. At about $885 per share, Micron trades at roughly 20 times earnings and only about 7 times the annualized earnings implied by its own fiscal fourth-quarter guidance. Multiples that low are the market's way of saying it doesn't believe the earnings will stick.

That's the bet on both sides of this divergence. If memory pricing holds into 2027 as AI demand continues to outrun supply, the stock is cheap, and the bear market in memory shares will likely look like an overreaction. If this is the cycle's peak quarter, today's earnings are the trap the market suspects. For now, though, the slowdown the market is trading on shows up nowhere in the company's own numbers.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.