Micron Tumbles on Tariff Threat: Risk/Reward Outlook Improves

Key Points

• Micron stock is correcting on tariff fears but has overcorrected to deep value levels.
• There is a risk of additional downside in Q2, but the stage is being set for a robust rebound that will likely begin in 2025.
• Analysts see this stock advancing by 85% at the consensus. 

Micron NASDAQ: MU is among the most tariff-exposed semiconductor stocks on the market. While its microchips are exempt from Trump’s tariffs, its business includes memory modules and SSD equipment that are not. The company’s response is to pass along the cost to its clients, which could curb demand drastically, but there is a silver lining.

Demand for memory is only improving and will underpin the business regardless of tariffs. The need for computing and memory to support AI training and inference is already enormous. It will grow exponentially with the next generation and exponentially again after that, and Micron is a leader in AI memory. 

Micron did not invent HBM technology but is a leader in perfecting it. Due to its capacity and speed, HBM or high-bandwidth memory is critical for data centers and AI. Micron’s HBM3E, the current standard, provides 50% more capacity than comparable competitors and does it with less power consumption.

That is why NVIDIA NASDAQ: NVDA uses Micron technology for its most advanced AI GPUs, including the Blackwell lineup. Power consumption is among the most significant hurdles and costs for cloud hyperscalers. 

Trump Threatens CHIPs Act Funding: Micron at Risk?

Trump’s intent to nix the CHIPs Act and the funding it provides is a headwind for Micron’s stock price. However, the $6.165 billion awarded by the Biden Administration is a drop compared to the $125 billion the company plans to spend over the next two decades.

The money will be used to expand existing and build new manufacturing facilities to support DRAM manufacturing, including HBM3 and the upcoming HBM4 architecture. It is expected to improve capacity by another 50% over HBM3E. The takeaway is that Micron is already manufacturing many of its chips and components domestically and is on track to expand its capacity. The tariffs will likely accelerate those plans. 

The analysts lowered the expectation for Micron's revenue and earnings in 2025 but continue to expect robust results nonetheless. The company’s revenue is forecasted to grow at a solid, high-double-digit pace in 2025 and 2026, with earnings growing at a more robust, hyper-quality pace.

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Earnings are forecast to grow by triple digits in fiscal 2025 and sustain a high, nearly 60% pace in 2026, and the forecasts may be too low. Micron’s AI boom was slow to build but produced significant outperformance in the first half of the fiscal year, leading to improved guidance at the end of Q1 and Q2.

The Risk for Micron Investors Is Limited 

The stock's low valuation and historical price action limit Micron's downside risk. Not only is the stock trading at a low 11x price multiple in 2025, about half what industry leaders are trading for, but the stock price has retreated to potentially strong support levels. These levels align with price points set at the COVID-induced bottom and highs in 2029. The market is pricing in no growth and is providing a discount to current operations at this level. 

The analysts also reset their stock price targets, but the market is overcorrecting like so many other stocks in Q2. The move to $69 aligns the market with the low end of the analysts’ range, highlighting the favorable risk-to-reward scenario.

While the consensus is down slightly compared to Q1, it remains up versus the prior quarter and year, forecasting a roughly 85% upside for the stock price.

The technical action in MU shows potential for a bottom in early April, but there is a risk of lower prices. The price action remains elevated within a prior trading range and could retreat to the range’s low end. A move to the low-end range is worth about $20 per share or 35% compared to the $55 or 85% upside forecast.