- Micron shares plunged in after-hours trading following earnings.
- Has the stock been unfairly punished?
- We will assess that and also consider if the market's overreaction was justified.
- Unlock AI-powered stock picks for under $7/month: Summer sale is live!
Micron Technology (NASDAQ:MU) shares took a nosedive in after-hours trading on Wednesday, plunging more than 6.5% following the release of its quarterly results.
Just last week, Micron hit an all-time high of $157.5, but the stock has since experienced a steep correction. This pullback is likely profit-taking as the stock has already rallied 66% YTD.
If the after-hours slide translates to Thursday's regular trading session, Micron could see a total decline of almost 10% from its record high. This decline underscores the volatility in the chip market.
Micron's Earnings Beat Met With a Selloff
Micron's latest earnings report offered a mixed bag for investors. While the company surpassed analyst expectations for both earnings per share (EPS) and revenue, its forecast fell short, leading to a sharp decline in stock price.
Micron reported EPS of $0.62, exceeding the anticipated $0.51. Similarly, sales reached $6.81 billion, surpassing the projected $6.67 billion. However, the company's forward guidance for the current quarter proved to be the source of investor discontent.
The disappointment stems from Micron's forecast for the current quarter: an EPS of $1.08 on sales of $7.6 billion, aligning precisely with analysts' expectations of $1.05 EPS on $7.6 billion in sales.
Investors punished the stock not for missing expectations, but for merely meeting them. This reaction might seem excessive at first glance, but it reflects the high valuation already priced into Micron's stock.
Micron’s share price had surged over 65% since the beginning of the year, fueled by the booming demand for AI technology, including the memory used in Nvidia (NASDAQ:NVDA)'s AI graphics processing units (GPUs).
However, the recent forecasts have led to a reassessment of the stock's value. Despite the drop from last week's record high, valuation models suggest Micron is still overvalued.
According to InvestingPro Fair Value, which aggregates several respected financial models, Micron's fair value is $97.84—over 31% below its closing price on Wednesday.
This significant discrepancy underscores why investors reacted so strongly to the company's latest forecast.
Source: InvestingPro
However, analysts are more optimistic, with an average target of $153.08, which translates into a potential upside of 7.5%.
Micron Remains a Good Bet, but Now May Not Be the Best Time to Buy
Micron's stock correction might worsen after today's decline, even though the company remains highly relevant to the AI rally. Micron manufactures the large quantities of memory essential for the computer systems that create, train, and operate powerful AI tools.
Chip prices continue to rise due to surging demand and shortages driven by the AI and tech booms. This situation exemplifies the difficulty in picking the best stocks: Micron is a strong company poised for growth as the AI industry expands. However, the current euphoria has pushed its share price beyond what fundamentals justify.
In today’s rapidly evolving market, where diverse factors influence trends, it's increasingly challenging for the average investor to determine which stocks to buy and when. Micron stands as a textbook case of a good stock at the wrong time, reflecting the eternal investor dilemma.
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Source: InvestingPro
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.