Micron (NASDAQ:MU) shares have been struggling, sliding 23% following its latest earnings release and leaving investors scratching their heads. The pullback has all the hallmarks of a classic “sell the news” reaction, but the intensity of the move suggests something more than simple profit-taking is at play.
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By almost any measure, the fiscal second-quarter results were exceptional – the kind of beat-and-raise performance that would typically ignite a rally rather than trigger a selloff. In the quarter, adjusted EPS rose by 682% compared to the same period last year. Now, if that looks huge, consider this: the outlook for FQ3 factors in a 903% rise at the midpoint vs. last year, from $1.91 to the range between $18.75 and $19.55.
Yet, there’s a sense that Micron may be approaching a peak in its current cycle. Not to mention, while the stock is getting no love right now, it is still up by 292% over the past year.
Indeed, top investor Noah’s Arc Capital Management (NACM) argues the rally may have already captured most of the upside, with “AI-driven DRAM demand appears fully priced in,” leaving little room for further multiple expansion even as the fundamentals continue to impress.
For those who haven’t tracked prior boom-bust cycles in the memory market, statements from major producers that supply is “sold out through 2027” may come across as firm evidence of locked-in demand, says NACM. However, the investor thinks such claims are best approached with a degree of skepticism.
“With this, I think the memory bull run (which began over 2 years ago) is coming to an end,” the 5-star investor went on to say. “Many of the large AI labs have secured more DRAM via forward contracts than what they will realistically need. This has created the sense of an artificial shortage supported by essentially FOMO on DRAM supply. Like in previous cycles, this will unwind.”
NACM is not disputing that Micron produces an “incredible product” that will remain central to the AI cycle for years ahead, and emphasizes that his view does not diminish the company’s importance in the AI landscape over the next decade.
The point, rather, is that expectations surrounding future orders, demand, revenue, and profits “may be overinflated.” Despite the argument that AI-driven demand makes this cycle different from previous ones, NACM argues that Micron remains exposed to the same cyclical patterns that have characterized the memory industry since its inception.
Against that backdrop, the investor thinks it’s time to change the tune, downgrading MU from Strong Buy to Hold (Neutral). (To watch Noah’s Arc Capital Management’s track record, click here)
On the Street, however, Micron still claims a Strong Buy consensus rating, based on a mix of 26 Buys vs. 2 Holds. Meanwhile, the average price target stands at $536.55, implying shares will climb 50% higher in the months ahead. (See MU stock forecast)
Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.