Micron Technology stock was dropping 1% Wednesday. A rotation away from semiconductor stocks continues to punish the memory-chip play but its coming earnings might remind investors of its potential.
The main driver of the recent moves has been broad-based chip-sector weakness.
"The tech sector is coming under pressure from a combination of higher rate expectations, which lowers the current value of more distant profits, and anxiety over elevated valuations and uncertainties over the monetization of AI," wrote Mark Haefele, chief investment officer at UBS Global Wealth Management in a research note
Shares have also been volatile as investors debate Micron's valuation. The chip maker trades at a notably low forward price-to-earnings ratio, a reflection of the memory industry's frequent boom-and-bust cycles. As of Tuesday's close, Micron was trading at 9.8 times forward earnings versus roughly 26 times for the tech-heavy Nasdaq Composite, according to FactSet.
However, Barron's has argued that Micron and a small number of other chip companies remain undervalued due to their lasting earnings power. Investors are likely to be reminded of that when Micron reports its fiscal third-quarter earnings on June 24. It is expected to report adjusted earnings of $19.43 a share, up from $1.71 for the same period a year earlier.
Skeptics will likely argue you can't value a cyclical memory-chip company based on the peak of its earnings. But most analysts believe Micron's explosive growth is set to last through at least 2027.
"Memory remains a key source of upside, with tight high-bandwidth memory and DRAM supply likely to underpin stronger pricing and earnings through 2027," wrote Dalya Hahnn, a research analyst at ClearBridge, in a recent research note.
