Micron Stock Is Down 28%, and Here Is What Investors Need to Know

Key Points

• Surging demand for memory hardware has given Micron extreme pricing power.

• The memory hardware business is cyclical, and eventually it will cool, but it’s unclear when that might happen.

• Micron’s stock decline was part of a broader sell-off among memory chip stocks.

Micron(NASDAQ: MU) has been one of the hottest stocks on the market this year, and even became a trillion-dollar company in May. Its stock peaked on June 25, but it has since slid sharply. As of market open on Monday, it was down by more than 27% from that all-time high, and valued at around $993 billion.

Considering its recent pullback, some investors may be wondering if the party is over or if this is a temporary slump. As we’ve consistently seen, it’s likely the latter.

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Why Micron stock has thrived in the past year

Let’s start with why Micron stock soared: the semiconductor company‘s central role in the artificial intelligence (AI) gold rush. It’s one of just three major players worldwide that make memory hardware. Without large volumes of memory in their data centers and on their AI hardware, companies wouldn’t be able to train AI models at scale, and the AI tools we interact with today would be much less effective.

As the data center build-out has accelerated, demand for memory hardware has skyrocketed. Supply, however, hasn’t nearly kept up, as it takes a fair amount of time to add production capacity. This has put memory-chip makers like Micron in a powerful position, allowing them to charge high premiums for their wares. Look at how much Micron’s gross margins have grown year over year:

Data source: Micron.

The explosion in business has unsurprisingly attracted investors, which is why the stock is up by almost 640% over the past 12 months.

Why Micron stock has pulled back recently

Micron’s pullback isn’t an isolated event. Memory chip stocks have been losing ground across the board. Peers Sandisk and SK Hynix are down by 46% and 30%, respectively, from their peaks.

Much of that has been driven by the companies providing relatively weak guidance compared to the market’s extra-high expectations, but it’s also likely that some investors have been taking profits after this year’s huge run-up.

Image source: The Motley Fool.

Is Micron still a buy?

Micron’s business is riding a cyclical high right now, driven by supply-demand dynamics in memory hardware. But eventually supply will catch up to demand, and growth will slow. That said, we don’t know when that will be. Even without an environment of unusually short memory supply, Micron is still a solid company with a good long-term trajectory.

The stock is a buy, but investors who hold it will need to be prepared to stomach its high volatility. We’ve seen the stock drop over 30% in less than two weeks, double in five weeks, plummet by 20% in two days, and jump up 20% in a week — and all of that happened this year.

If you have a set amount you’re looking to invest in Micron, I would use a dollar-cost averaging strategy and break that total down into smaller investments made at intervals, rather than investing the lump sum all at once.

Should you buy stock in Micron Technology right now?

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Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.