25% drop in Micron shares; Is now the time to buy?
Source link: 25% drop in Micron shares; Is now the time to buy? The drop in Micron's stock occurred while the company's revenue and profit exceeded previous forecasts. However, the increase in capital costs and the possibility of a slowdown in memory price growth raise serious questions about the sustainability of this company's profitability. At a glance, Micron shares were trading about 25 percent below their June 25 close. Quarterly income […] Source site: Safir Arjan
The drop in Micron's stock occurred while the company's revenue and profit exceeded previous forecasts. However, the increase in capital costs and the possibility of a slowdown in memory price growth raise serious questions about the sustainability of this company's profitability.
Micron shares were trading about 25 percent below their June 25 close.
Revenue for the fiscal fourth quarter reached $54.2 billion, exceeding the company's forecast.
Management expects the memory market to face further supply constraints in fiscal years 2027 and 2028.
The reduction in valuation has made stocks more attractive; But the cyclicality of the industry is still the main investment risk.
Micron's financial performance was better than expected
Micron, one of the major manufacturers of memory chips, recorded revenue of $54.2 billion and adjusted earnings of $33.42 per share in the fourth quarter of fiscal 2026, which ended on September 3. These figures were clearly higher than management's previous forecast of $50 billion in revenue with a margin of error of $1 billion and earnings of around $31 per share.
Revenue growth has also been impressive: the company's sales rose from $23.9 billion in the second quarter to $41.5 billion in the third quarter and then $54.2 billion in the fourth quarter. For the first quarter of fiscal year 2027, management has forecast revenue of about $61.5 billion and adjusted earnings of nearly $38 per share.
Therefore, the drop in stock price cannot be directly attributed to the company's weak operating performance.
Why did stocks fall despite strong performance?
The closing price of Micron stock reached a record high of $1,213.56 on June 25; But on October 14, it decreased to $914.13. The most important concern of investors is the possibility of memory price growth slowing down and the gradual end of the current boom in the market.
The price of dynamic memories in the fourth financial quarter increased by over ten percent compared to the previous season; While its growth in the third quarter was in the low range of 60%. The financial manager of the company also expects the rate of price increase to moderate in the continuation of the 2027 financial year.
On the other hand, increasing the production capacity of competitors can put more pressure on prices in the long run. For example, on October 10, the Chinese company CXMT announced its plan to release a new generation of server memory by the end of 2026.
Long-term contracts and limited supply
Despite these concerns, the supply and demand outlook remains in Micron's favor. The company's CEO, Sanjay Mehrotra, stated that industry demand has strengthened and memory supply and demand conditions are expected to be tighter in fiscal years 2027 and 2028 than in fiscal year 2026.
Also, the value of the company's unrecorded contract revenues based on the minimum agreed prices increased from more than $5 billion at the end of the third quarter to about $134 billion at the end of the fourth quarter. These contracts can improve the visibility of future earnings; However, they are not a guarantee to realize all the expected revenues or to maintain the current profit margin.
increase investment; Opportunity or threat?
Micron had about $27.4 billion in capital expenditures in fiscal year 2026. For the first half of fiscal year 2027, the company has predicted about 25 billion dollars of investment and expects this figure to increase in the second half.
An important part of the costs is dedicated to the construction and development of production spaces to increase the capacity of factories for the coming years. This investment can strengthen the company's competitive position; But if new supply grows faster than demand, pressure on memory prices and investment returns will increase.
"Micron is in a strong operating position with rapid revenue growth, better-than-expected profits and significant long-term contracts. However, the slowdown in memory price growth, the increase in capital costs and the possibility of new capacity entering the market are important risks. "Buying stocks at lower prices can be attractive to long-term investors, provided they can withstand the industry's extreme volatility."
Is Micron stock worth buying?
At its peak, Micron stock was valued at about 27 times four-quarter earnings; While after the price drop, the price-to-earnings ratio has reached 12 times based on the 2026 financial year earnings. According to the analysts' estimate of the profit of the fiscal year 2027, this ratio will decrease by about 5 times.
These figures are attractive at first glance; But it should be noted that the profit of the memory industry is highly cyclical. If prices fall, the company's profits may also fall, and today's low price-to-earnings ratio does not necessarily mean sustainable valuation.
In my opinion, Micron's appeal doesn't just boil down to a 25% price drop or a low price-to-earnings ratio; The decisive point is the stability of current profits against the cycle of supply and demand. Long-term contracts and expected storage shortages could support the company's earnings, but heavy investment and slowing price growth warn that peak-cycle gains should not be simply extrapolated into the future. Therefore, Micron is a viable option for the long-term investor who accepts yield volatility; However, a phased entry and continuous evaluation of memory price trends, data center demand, and returns on new investments would be a more logical approach than buying solely based on price drops.
Artificial intelligence has been used to translate some parts of this report.