Unpacking the Latest Pullback in Micron Stock

If you look around at semiconductor stocks lately, you'd think there was something terribly wrong with the industry. Many stocks have fallen hard over the past weeks, including shares of Micron Technology (NASDAQ: MU), which are down 27% since mid-June.

But the drop isn't tied to problems in Micron's business and is instead being fueled by broad investor skepticism about artificial intelligence (AI) spending.

Honestly, the sell-off appears more like a knee-jerk reaction than a true assessment of Micron's opportunities. Here's why.

Image source: The Motley Fool.

$1 trillion in semiconductor value vanished in just one month

Micron's decline began shortly after the company released its results for the fiscal third quarter (ended May 28), in which sales increased 345% to $41.5 billion and earnings per share spiked more than 1,200% to $25.11.

Instead of being satisfied with such impressive results, investors began worrying that the massive spending spree from tech companies that's currently underway will eventually slow down, and that Micron's growth is unsustainable as a result.

Those fears were compounded in the following weeks as other semiconductor stocks suffered similar fates. A CNBC report found that 20 of the world's most valuable semiconductor companies -- including Micron -- lost $1.3 trillion in market cap value in July.

It's not uncommon for some investors to take their gains after a huge share price run-up -- Micron's stock is still up 720% over the past 12 months -- but the pessimistic outlook for Micron and its peers does seem unwarranted.

Consider that Alphabet, one of the largest investors in data centers, said just several weeks ago that it would raise its AI capex to up to $205 billion this year -- and that 2027 capex will "increase significantly."

Amazon's spending is rising rapidly, too. Management said the company's capex this year will reach around $220 billion, up about 66% from 2025 levels.

This doesn't sound like an AI spending slowdown to me.

The latest Micron stock pullback is a buying opportunity

With AI spending still well underway and Micron already benefiting from memory chip demand, investors who've been waiting to buy Micron may want to consider doing so now.

Management believes the memory shortage will persist at least through 2027, and fellow memory chip company SK Hynix thinks it could last through 2030.

What's more, Apple CEO Tim Cook recently said he expects memory prices to remain elevated, spurring the tech giant to raise prices on many of its devices directly because of higher memory costs. Apple likely wouldn't have made that big move if it believed higher memory costs were temporary.

The latest pullback has made Micron stock even more attractive, with shares trading at a trailing price-to-earnings (P/E) ratio of about 19, far below the tech sector average P/E ratio of 35. That's a discount you shouldn't pass up if you want some exposure to the booming memory chip business.

Chris Neiger has positions in Apple. The Motley Fool has positions in and recommends Alphabet, Apple, and Micron Technology. The Motley Fool has a disclosure policy.