The market's been kind of rocky since late February, especially for tech stockssemiconductors in particular have taken a beating. But things turned around in a big way recently. On Monday, tech stocks shot up after the U.S. and China agreed to cut tariffs from 125% down to just 10% for 90 days. That was a huge relief for the market, and semiconductor stocks rallied hard. Micron, for example, jumped 7.6% in one day. Now, Micron's stock is up about 16.4% so far this year, which is way better than the NASDAQ 100 and S&P 500, which are only up 2% and 1.3%, respectively. In my opinion, all this ups and downs started with the panic over Trump's tariffs, and now the mood has flipped again with the new trade deal. It just shows how sensitive the market can be to headlines. But in times like this, I think it's important for investors to stay calm and focus on the bigger picture. Personally, I'm still bullish on Micron. I think the stock has a lot of upside ahead. Memory chip prices are going up, and demand from AI is only getting stronger. I believe Micron is in a good position to grow its sales and profits in 2025 and 2026. The company's fundamentals look solid. Their recent earnings were strong, and even though their forecast for the next quarter looked a bit slower, I think they'll hold up well. All in all, I still think Micron is a good buy right now, even after its recent jump.
Industry trends are lining up nicely for Micron's expansion and innovation plans. Data center spending is still going strong. Alphabet's CEO recently said Google will put $75 billion into AI infrastructure this year, and the biggest U.S. tech firms will collectively spend over $300 billion on data centers in 2025. Chinese rivals aren't holding back eitherthey're also pouring billions into beefing up their AI setups. Micron even warned customers it will raise prices because demand for its high?bandwidth memory (HBM) is likely to stay robust through 2026. That pricing power really shows off how strong Micron's HBM tech is. Mordor Intelligence expects the HBM market to grow at a 25.9% CAGR through 2030, and I believe Micron is well?positioned in that booming niche.
Some worry that this AI spending surge could fizzle out and leave Micron with idle plants and weak returns. That's a valid risk, but I think it's premature to dismiss Micron's build?out. We've already seen a notable uptick in their machinery and facility investments in recent quartersclear signs they're scaling up capacity. On top of that, Micron is pouring money into R&D, and I believe that innovation is the key to protecting its moat and preserving pricing power. With $9.6 billion in cash and investments against $14.4 billion in debt, I think the company's $14 billion CapEx plan for FY 2025 is manageable. In my view, these aggressive investments in both CapEx and R&D will pay off over the long term.
Fundamentals
Micron's trailing?twelve?month revenue hit $31.3 billion, up from $25.1 billion at the end of FY 24 and just $15.5 billion in FY 23. Management is guiding for about $8.8 billion in revenue next quarter ($200 million), which at the midpoint implies roughly 29.2% YoY growth versus last year's $6.81 billion. DRAM still makes up about 76% of sales and grew 47% YoY, while NAND contributes around 23% and was up 18% YoY. That does show a bit of a growth slowdown, but it's right in line with the averages we've seen over the past few years.
The longer?term AI memory story remains intact. The high?bandwidth memory market was worth $5.6 billion in 2024 and is forecast to expand to $22.5 billion over the next decade. AI chips need fast, on?package memoryexactly what Micron's DRAM tech delivers. HBM sales alone jumped over 50% sequentially, topping $1 billion for the quarter, or more than 12% of total revenue. Management also noted a shift to higher?priced 12?high stacks and expects the HBM TAM for 2025 to exceed $35 billion. If Micron hits that target, it could reach HBM market?share parity with its overall DRAM share by year?end, which should boost margins.
Part of the margin story is supply tightness. An HBM bit takes three times (and eventually over four times) more silicon than a standard DRAM bit. As Micron allocates more leading?edge wafer capacity to HBM, it limits supply for other DRAM products like DDR5, tightening the market and supporting prices across the board. We're already seeing results: adjusted gross margin climbed from 20% to 37.9% YoY, and adjusted operating margin rose from 3.5% to 24.9%. For the next quarter, Micron is guiding a gross margin of about 36.5% (1%), up sharply from Q3 FY 24's 28.1%. Some growth moderation is natural as the business scales, but these margin improvements and pricing dynamics tell me Micron's fundamental outlook remains very solid.
Tariff Implications
On its March 21 earnings call, Micron's management stressed that its direct exposure to the newly announced tariffs on Canada, Mexico, and China is very limitedsemiconductors themselves remain exempt and only certain memory modules and SSDs carry modest duties, which Micron will pass straight through to customers rather than absorb into its margins. Then, on May 12, the U.S. and China stunned markets by agreeing to a 90-day truce that slashes U.S. duties on Chinese goods from as high as 145% down to 30% and cuts Chinese levies from 125% to 10%, immediately lowering landed costs for chipmakers and their customers . That breakthrough sent semiconductor shares sharply higherMicron jumped 7.6% on the news as investors piled back into tech amid hopes for steadier trade flows. Crucially, I believe semiconductors will stay off any future core tariff lists, given their vital role in U.S. tech and defense supply chainseven as policy talks proceed, any adjustments would need to be gradual and well telegraphed. Of course, Fed policy remains a wildcard, and if interest rates stay higher for longer, growth-oriented names like Micron could still see volatility as some investors rotate out of riskier assets.
Valuation Disconnect Points to a Buying Opportunity
Micron's current P/S ratio sits at just 3.5xdown from over 7.5x in mid?2024and is near three?year lows. I know memory is a cyclical business, but this plunge below its average feels extreme compared to the underlying fundamentals.
Micron is currently trading at just 9 times its expected earnings for fiscal year 2025, which is historically low. Every time the stock has traded this cheaply in the past, it's usually marked a local bottom and set the stage for a rebound. Even if growth slows a bit from here, I think this drop in valuation is overdone. If we assume a conservative rebound to just a 13x forward P/E, still well below the 20x it reached in mid 2024, Micron's stock would be worth around $141. That's about 44 percent higher than where it's trading today. Considering the solid growth outlook and Micron's strong position in high bandwidth memory for AI infrastructure, this kind of discount doesn't make much sense. The fundamentals are strong and the market is likely underestimating both the earnings power and the long term demand for its tech.
I ran a simple DCF using FY2026 consensus revenue as Year 1, then a 12% revenue CAGR for Years 25, a 3% perpetual growth rate, and a 10% discount rate. I didn't bake in any big margin gains since I expect Micron to keep plowing money into R&D and CapEx as technology evolves. Even so, the model produces an intrinsic value per share about 22% above today's price. That kind of upside on a business with solid growth visibility and a strong market position is exactly why I'm getting in on Micron now.
Big?Name Investors Share My Conviction
I'm encouraged that top allocators also see value here. David Tepper (Trades, Portfolio) upped his Micron stake by 14.3% in Q4 2024, adding about 150,000 shares at around $101now 1.36% of Appaloosa's portfolio. Vanguard holds 100 million shares, BlackRock about 96 million, State Street roughly 50 million, and Fidelity's FMR close to 48 million. Other notables like Donald Smith & Co, Joel Greenblatt (Trades, Portfolio), Prem Watsa (Trades, Portfolio), Ken Fisher (Trades, Portfolio), and Jefferies Group (Trades, Portfolio) all maintain meaningful positions. This broad?based support from gurus and institutions reinforces my confidence that Micron's stock is set to outperform in 2025.
Concluding Thoughts
In my view selling Micron after this recent pullback would be a missed opportunity. The tariff scare and questions over ramping up CapEx in 2025 have scared some investors, but I believe management's spending is exactly what's needed to meet surging AI?memory demand. There's no real reason to think tariffs will hit Micron as hard as the market fears, and today's forward valuation is at levels that historically have marked the bottom. With improving financials, a rock?solid balance sheet, and powerful AI tailwinds still building, now feels like the perfect time to add to a top AI memory play for the long run.
