Micron Stock Plummets 20% After Record Earnings: Buy the Dip?

Micron Technology (MU) reported fiscal fourth-quarter results on Sept. 30 that were nothing short of spectacular. Revenue hit $54.2 billion, up nearly 380% year over year, while earnings per share surged to $32.87 from just $2.83 a year earlier. Gross margin expanded to 87%, and the company generated $33 billion in adjusted free cash flow. Management even guided for continued momentum in the current quarter, projecting $61.5 billion in revenue and EPS of $37.84.

Despite these blowout numbers, Micron's stock has been in free fall. Since the earnings report, shares have dropped roughly 20%, and they now sit nearly 29% below their all-time high. This disconnect between stellar fundamentals and a sinking stock price has left many investors scratching their heads.

The sell-off isn't isolated to Micron. The broader semiconductor sector has also taken a hit, with the iShares Semiconductor ETF (SOXX) down 15% over the same period. This suggests that the weakness is not company-specific but rather a sector-wide reassessment of risk.

So why are investors punishing a company that just delivered record results? The answer lies in three key concerns: a sector-wide sell-off, growing worries about the sustainability of AI capital expenditures, and fears that the memory industry's unusually high profitability won't last. These factors have combined to create a perfect storm for Micron's stock, even as its business fires on all cylinders.

The first reason for Micron's decline is the broader semiconductor sell-off. When a sector leader like Micron reports blowout earnings but the stock still falls, it signals that investors are worried about the entire industry, not just one company. The SOXX ETF's 15% drop confirms that this is a sector-wide de-risking event.

The second concern is AI capital expenditures. Hyperscalers like Amazon, Microsoft, Alphabet, and Meta are spending hundreds of billions on data centers and advanced chips, often funded by debt. With bond yields elevated, investors are questioning how long this spending spree can continue. Tesla's recent decision to cut its 2026 capex by 20% has only intensified these fears, even though Tesla is not a major AI infrastructure player.

The third and most obvious worry is the memory cycle. Micron is reaping the benefits of a supply shortage in high-bandwidth memory (HBM), which has driven prices and margins to extraordinary levels. But investors know that memory is historically cyclical. When supply catches up with demand, prices will normalize, and profits will fall. This fear is reflected in Micron's forward P/E of just 7, which prices in a significant earnings decline.

However, at 7 times forward earnings, Micron's stock already discounts a lot of bad news. The company's strong cash flow and leadership in HBM technology position it well for the AI era. If AI spending remains robust, Micron could surprise to the upside. The current sell-off may be an overreaction, creating an opportunity for patient investors.