Micron stock drops despite blowout quarter – Should you buy?

Micron Technology (NASDAQ:MU) has been one of the best performing technology sector stocks this year, returning some 48% YTD while the overall sector is barely treading water.

On Thursday, Micron stock was trending about 2% lower for reasons that are not very clear. The company delivered a strong fiscal third quarter earnings report on Wednesday after the market closed and had a better-than-expected outlook.

The company, which makes memory and storage chips and drives for computers, had a blowout quarter.

Revenue for the quarter came in at $9.3 billion, which was up 37% year-over-year and 15% from the previous quarter. It also exceeded analysts’ estimates of $8.8 billion.

The firm generated $1.89 billion in net income, or $1.68 per share, which was up 20% from the previous quarter and dwarfed the $332 million made in the same quarter a year ago. Adjusted net income was $2.1 billion, or $1.91 per share, which crushed estimates of $1.60 per share.

Micron’s earnings were buoyed by record revenue from its DRAM, or dynamic random-access memory, chips and a 50% increase in its AI-enabled HBM, or high-bandwidth memory, chips. Also, its revenue from data centers more than doubled, year over year.

Overall, operating expenses increased by 12% to $1.34 billion, but Micron boosted its gross margin to 37.7%, up from 36.8% the prior quarter. Further, it increased its operating cash flow by 85% year over year to $4.61 billion.

“We are on track to deliver record revenue with solid profitability and free cash flow in fiscal 2025, while we make disciplined investments to build on our technology leadership and manufacturing excellence to satisfy growing AI-driven memory demand,” Sanjay Mehrotra, chairman, president and CEO of Micron Technology, said.

Guidance is rosier than expected

Micron’s momentum from Q3 should continue for the rest of the fiscal year as Micron’s guidance was better than analysts anticipated.

Revenue is projected to be $10.7 billion in Q4, which would be up from $9.3 billion in Q3 and better than the $9.9 billion that analysts had estimated. Also, the gross margin is expected to be 41%, which is up from 37.7% last quarter.

Further, operating expenses are targeted to reach $1.35 billion, only up slightly from Q3, and earnings are expected to be around $2.29 per share – up from $1.68 in Q3.

The stock price soared some 5% in premarket trading after earnings were posted Wednesday afternoon but then sank 2% in Thursday trading.

It is unclear why the stock dropped, especially since it got a slew of price target upgrades from analysts, including Morgan Stanley, who increased it by $37 per share, and Raymond James, who raised it by $30 per share.

The only reason could be that investors pulled back, thinking the stock might be getting too hot. After all, Micron stock is up 48% YTD.

But here’s the thing – it is by far one of the cheapest, best tech stocks out there, even with its 48% rise. It is trading at just 23 times earnings, which is well below the Nasdaq average, and 12 times forward earnings.

And it has a huge, long runway, squarely positioned to benefit from the growth of AI computing. Micron has long been a favorite, and it remains so – particularly after this selloff.