1 Thing Every Micron Stock Investor Needs To Understand Right Now

Micron (NASDAQ: MU) stock, the leading memory chipmaker, skyrocketed through the first half of the year, up more than 300%, but since then, it's fallen apart.

The stock is down 29% from the start of July, even though there's been little news out on the company itself.

Micron's last earnings report was June 24, and the company blew past estimates on the top and bottom lines, with year-over-year revenue growth of more than 300%, and earnings per share up more than 10x.

It also issued much better guidance for the current quarter than expected. The stock peaked the day after the earnings report at $1,255 a share and has been falling since. Let's take a closer look at why the stock has been so volatile, and the key factor investors need to understand about Micron stock.

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Sentiment is in the driver's seat now

The memory sector has historically been highly cyclical. In 2023, for example, Micron was reporting billions in annual losses due to an industry glut. The AI boom quickly turned that into a shortage, but after the stock surged more than 10x from its earlier levels, investors have been hedging against further gains, and investor sentiment around the stock has become exaggerated, amplifying every swing in the stock.

Because of the cyclicality of the memory sector, Wall Street analysts and others are continually refining their models in an attempt to predict when memory chip prices, and therefore profits, will peak. That means that every piece of news that could swing that calculus one way or another has an outsize impact on the stock.

For example, Micron stock tumbled last Wednesday after peer SK Hynix missed profit estimates despite strong growth. More broadly, concerns about hyperscalers overspending on capital expenditures have also pressured the stock and its AI infrastructure peers. Similarly, the stock fell when China's Kimi K3 model was launched last month, as investors worried it could disrupt market dynamics in the semiconductor industry.

What investors need to understand about the current price action around the stock is that it's being driven by fleeting news items, rather than the underlying performance of the business, which will ultimately drive the stock over the longer term. Therefore, investors are better off ignoring the day-to-day movements.

What it means for investors

Predicting when the memory cycle peaks would be highly difficult at this point, as it's clear from comments last week from Apple and others that the sector is still tightening and prices are going up. SK Hynix CEO Kwak Noh-Jung even said that the memory chip shortage may last past 2030. Indeed, forecasts for Micron call for earnings to move significantly higher in fiscal 2027, which begins in September, climbing from an EPS forecast of $73.43 in fiscal 2026 to $155.56 next year, and EPS estimates have moved up modestly in the last month, a positive sign for Micron. For fiscal 2028, the consensus is now $181.37, though these numbers are likely to change a lot in the coming quarters.

In addition to the difficulty of predicting the path of the memory cycle, some investors are now arguing that the traditional cyclicality of memory chips has been broken by AI, as any future bottom of a cycle will be much higher, and the proliferation of physical AI devices like autonomous vehicles will continue to expand the market for memory chips. For example, a Waymo robotaxi uses 25 to 40 times more RAM than a typical iPhone.

Is Micron a buy?

Investors should be prepared for continued pressure and volatility in the stock, but the valuation math continues to look attractive. Taking the fiscal 2028 earnings number above, Micron trades at less than five times 2028 earnings now, and analysts have underestimated the company's growth in recent quarters, so we could see those estimates move even higher.

Keep an eye on the forward EPS consensus for the stock, as it should be a better indicator of the stock's performance over the coming years than day-to-day movements, which are driven by sentiment.

It will continue to be a wild ride for Micron, but at the current price, the stock looks like a good bet to rise over the next year or two.

Jeremy Bowman has positions in Micron Technology. The Motley Fool has positions in and recommends Apple and Micron Technology. The Motley Fool has a disclosure policy.