Micron's Earnings Outlook vs. Stock Performance: Is the Selloff an Opportunity?

The memory market has always been a rollercoaster, but Micron Technology (NASDAQ: MU) is defying the script. Despite reporting record revenue, margin expansion, and a bullish outlook for AI-driven demand, its stock has stumbled in recent weeks. For contrarian value investors, this dislocation between fundamentals and price raises a critical question: Is this a buying opportunity in a high-growth sector, or a warning sign of overvaluation? Let's break it down.

The Earnings Story: A Rocket Ship in a Cyclical Sector

Micron's Q2 2025 results were nothing short of explosive. Revenue hit $8.05 billion, with HBM revenue crossing the $1 billion threshold for the first time. Year-over-year, the company grew revenue by 37% and net income by 168%. Even more impressive: adjusted gross margins surged to 39.0% in Q3, up 110 basis points sequentially, driven by a product mix skewed toward high-margin HBM and DRAM.

The company's guidance for Q4 is even more aggressive. It now expects $11.2 billion in revenue (up from $10.7 billion) and $2.85 in adjusted EPS, with gross margins projected to hit 44.5%. These numbers aren't just beating expectations—they're redefining them. Analysts have raised their forecasts, with 21 of 23 covering the stock now projecting 47% revenue growth in FY25 and 30% in FY26.

The Stock's Dilemma: Strong Fundamentals, Weak Price Action

Despite this, Micron's stock has underperformed in recent weeks, trading at $121.79 as of mid-August—a 0.21% dip after hours. The disconnect is puzzling. The Zacks Rank, which evaluates changes in earnings estimates, currently lists Micron at #3 (Hold), with a 3.55% increase in consensus EPS projections over 30 days. While not a “Strong Buy,” this suggests analysts are cautiously optimistic.

The valuation metrics tell a different story. Micron trades at 15x 2025 earnings and a jaw-dropping 9.5x FY26 estimates, far below the industry average of 18.93x. For a company with a 47% revenue growth forecast, this looks like a discount. The enterprise value to revenue ratio of 4.25 is also attractive, especially when compared to peers like Samsung and SK Hynix, which trade at higher multiples despite similar growth trajectories.

Contrarian Logic: Is the Selloff a Gift?

Here's where value investors need to lean in. Micron's stock has been a victim of its own success. The AI hype cycle has pushed investors to chase “pure plays” like NVIDIA and AMD, while memory suppliers like Micron—critical to the AI stack—have been overlooked. But this is a classic case of “buy the rumor, sell the news.”

Micron's HBM business is the linchpin. With a 23-24% market share in HBM and demand expected to outpace DRAM by 2026, the company is uniquely positioned to capitalize on AI's secular growth. Its partnerships with NVIDIA (Blackwell GB200) and AMD (Instinct MI350) ensure sticky demand, while its 200-year U.S. manufacturing plan locks in long-term government incentives.

Risks and Realities

No investment is without risk. Micron's traditional DRAM and NAND businesses remain cyclical, and overcapacity in these segments could reintroduce volatility. However, HBM's complexity and limited supply provide a buffer. Micron is also projecting $857 million in free cash flow for Q2 and $1.22 billion in levered free cash flow over the trailing 12 months, giving it flexibility to reward shareholders via dividends and buybacks.

The Zacks Rank's #3 rating is a cautionary note, but the recent EPS revisions (up 3.55%) suggest analysts are recalibrating to the new reality. For long-term investors, the key is to separate short-term noise from long-term value.

Final Verdict: A Buy for the Patient

Micron's stock is trading at a discount to its intrinsic value, especially when viewed through the lens of AI-driven demand. At 9.5x FY26 earnings, it's a rare combination of high growth and low valuation. The selloff offers a chance to buy a critical enabler of the AI revolution at a price that doesn't fully reflect its potential.

For contrarian investors, the message is clear: This isn't a panic selloff—it's a strategic entry point. Micron's fundamentals are rock solid, its guidance is bullish, and its valuation is screaming for attention. If the company can maintain its margin expansion and execute on its HBM roadmap, the stock could easily double from here.

Bottom line: Don't let the short-term dip cloud the long-term vision. Micron is a high-growth stock with a value price tag—buy it before the AI crowd catches on.