Micron stock plunges: Has it topped, or is this a rare buying opportunity?

Micron stock has plunged since reaching a record high of $1,255 on June 25.

Shares have fallen about 30%, mirroring the sharp declines seen across the memory chip sector, including industry leaders Samsung and SK Hynix.

So, has Micron reached its peak, or is this pullback a golden buying opportunity?

Micron stock is falling despite its robust growth

The ongoing Micron share price plunge is happening despite the fact that the company is firing on all cylinders.

It has become one of the fastest companies in the United States, and analysts predict that the trend will continue.

In its recent numbers, the company said that its revenue growth has accelerated, helped by the increased spending. Its revenue jumped to $41.5 billion in the third quarter, with its gross margin hitting 84.6%. The margin growth was driven by the rising volume and prices. 

Micron’s revenue figure is important because it was higher than the $37 billion it made in the last fiscal year.

Also, the company’s guidance showed that the growth is not decelerating, with revenue expected to jump to $50 billion and its gross margin coming in at 86%. 

Historically, Micron has always been a highly conservative company, meaning that its real figures will be higher than these. 

There are signs that the AI demand is set to accelerate in the coming months, with many companies publishing strong numbers.

ASML published a strong report this week and hinted that it was considering hiking the price of its machines. TSMC also released strong numbers earlier today.

Most importantly, despite its strong growth, Micron is still not a highly overvalued company. Its forward price-to-earnings ratio has slipped to 13.4, which is lower than the technology sector median of 25 and its five-year average of 74.

With growth included in this metric, the company has a forward PEG ratio of just 0.08, smaller than the sector median of 1.37.

Indeed, most analysts tracking the company have a bullish outlook. MarketBeat data shows that 35 of these analysts have a buy rating, with only 3 of them having a hold rating.

KeyCorp’s John Vinh hiked the target from $1,600 to $1,750 on July 14. DA Davidson’s Gil Luria hiked from $1,500 to $2,000. 

Profit-taking and lessons from history

The ongoing Micron stock crash is mostly because of a few reasons. First, there are signs that investors are booking profits not only in Micron but also in other memory names. This explains why the DRAM ETF has dropped by over 32% from its highest point this year.

Second, investors are worried that history may repeat itself. This is where memory stocks and revenue growth surges and then drops as inventories start rising. This happened in 2023 when Micron’s revenue dropped to $15 billion from $30 billion. 

Third, there are concerns that the room for memory chip price growth is narrowing, a move that may accelerate if top hyperscalers start cutting their capital spending plans. 

What next for MU stock?

MU stock chart | Source: TradingView

Technical analysis suggests that the Micron share price will likely come under pressure for a while as profit-taking continues. It has formed a head-and-shoulders-like chart pattern and moved below the 25-day moving average.

The most likely scenario is where it continues falling, potentially to the 100-day moving average of $743 and then bounces back. A drop below that level will point to more downside.