On December 18, semiconductor companies Micron technology (MU 10.45%) reported earnings for the first quarter of fiscal 2025 (ended November 28) – and by all accounts, the report looked rock solid.

Micron’s revenue rose 85% year over year, driven in large part by a thriving data center business that is undoubtedly benefiting from the artificial intelligence (AI) revolution. More importantly, the company’s profit margins are increasing alongside increasing sales. Micron’s first-quarter net income of $1.9 billion is a huge improvement over the company’s loss of $1.2 billion in the same period in 2023.

Still, shares have fallen 18% since Micron’s earnings report in mid-December, and the current share price of $85 is dangerously close to a 52-week low. What’s going on here?

Below, I’ll break down what triggered the sell-off in Micron stock and why I think now is the perfect opportunity to take advantage of the decline in this unique semiconductor opportunity.

What led to the sell-off in Micron shares?

During an earnings release, companies sometimes release financial forecasts to give investors and analysts a rough idea of ​​what to expect in the coming quarter.

In its Q1 report, Micron gave guidance for revenue of $7.9 billion (plus or minus $200 million) and earnings per share (EPS) of $1.23 (plus or minus 0 .10 US dollars). The high end of Micron’s near-term revenue forecast implies total revenue of $8.1 billion. This was seen as dismal by the investment community as it pales in comparison to Wall Street’s expectations of $8.9 billion.

Additionally, the company’s EPS forecast of $1.23 is well below the analyst consensus estimate of $1.97. Given the weaker-than-expected forecast, it’s not surprising that investors are disappointed with Micron stock.

Image source: Getty Images.

Despite an uninspiring short-term forecast, the long-term thesis remains

While Micron’s forecast may seem uninspiring, it’s important for investors to look outside and look at the bigger picture. If Micron hits its second-quarter revenue forecast of $7.9 billion, that would represent a year-over-year growth rate of 36%. Additionally, the EPS forecast of $1.23 implies year-over-year growth of 73%.

When you consider these numbers, it’s hard to ignore a company that is increasing its sales by about 30 percentage points and increasing its profitability by almost double.

In addition to the above financials, it is important for investors to understand Micron’s position in the chip space. Micron develops memory and storage chips. Industry studies suggest that trillions of dollars are expected to be invested in AI capital expenditure (capex) in the coming years. In theory, this subtly implies that the training and inference workloads for generative AI development are likely to become more demanding – underscoring the need for improved chipware.

As new GPUs from Nvidia, Advanced micro devices, Amazon, alphabet, MicrosoftAnd Metaplatforms With the launch, Micron is in a lucrative position to take advantage of the increasing demand for memory and storage chips. For me, the long-term thesis surrounding Micron is still convincing.

Micron’s valuation makes it a tempting buy

While each of the companies in the peer group below plays a different role in the semiconductor landscape, the trends in the chart make one thing clear: investors are underestimating Micron’s potential compared to other opportunities in the chip space.

MU PE Ratio (Forward) data from YCharts

Micron’s forward price-to-earnings (P/E) ratio of 12 is at its lowest level in a year and pales in comparison to all of the company’s peers. I believe the sell-off in Micron stock is unwarranted and see the company’s discount among leading semiconductor stocks as an opportunity to acquire shares and prepare to hold them for the long term.