Has Micron's Stock Drop Turned Into A Screaming Buy?

Key Points

• Shares of Micron have been under pressure for much of the past month as sentiment has cooled.
• However, fundamental performance remains strong, and analysts remain bullish. 
• The technical setup is also attractive, with Micron shares starting to look extremely oversold at current levels.

Having had a spectacular run since the start of 2023, shares of Micron Technology, Inc. NASDAQ: MU are experiencing their juiciest sell-off in quite a while. Since hitting an all-time high in June, after logging gains of more than 200% in the 18 months previously, they've sunk 30%. 

There are a couple of factors at play here. Of course, the most obvious is that it's mostly just some good old-fashioned profit-taking after a stunning run. And that's with regards to equities in general, not just Micron. It's worth noting that the benchmark S&P 500 index had its best first half-year in a long time, with all-time highs being set on a seemingly weekly basis since January, but it has also been softening somewhat.

Wider Industry Tailwinds for Micron and Its Competitors

There's also the geopolitical angle, which is affecting chip-making stocks in particular. Since last month, the U.S. has been signaling its intention to clamp down on companies that export their chip-making equipment to China. Tighter export restrictions would have a considerable effect on Micron and its peers, and it's fair to think that this has been weighing on investors' minds. 

For example, Micron's closest competitors, such as NVIDIA NASDAQ: NVDA and Advanced Micro Devices NASDAQ: AMD, have also been under pressure from the bears, to the tune of 20% and 40% respectively. This is considerably more than the 3.5% that the S&P 500 has given up, with the latter only turning south in the past two weeks, while the chip makers have been selling off since the middle of June. 

A 30% drop for Micron sounds dramatic, but for context, that only puts them back to March and April's levels. Such has been the performance this year alone, and Micron has still been up 30% since the first week of January. The question that has to be asked then is, at what point does the drop turn into a screaming buy opportunity? 

Micron's Solid Fundamentals

The first thing to point out is Micron's underlying fundamental strength. The company's last earnings report delivered its highest revenue print in two years, while its EBITDA margin numbers are almost 3x the sector median. Micron's most recent earnings report in June came in ahead of analyst expectations, with CEO Sanjay Mehrotra saying they were "well positioned to deliver a substantial revenue record in fiscal 2025."

As part of this, Micron's forward guidance came in high, which is always a pleasant surprise. Instead of the previous consensus for revenue to land around $7.58 billion, it's now forecasted to come in closer to $7.6 billion and potentially as high as $7.62 billion.

Bullish Outlook for Micron Stock

Beyond the strong fundamental performance and outlook, there are also the bullish analyst updates to consider. In the first week of July, as Micron's slip was starting to gather some momentum, the team at KeyCorp reiterated their Overweight rating on the stock and boosted their price target up to $165. 

Considering Micron shares closed under $108 on Monday night, that indicates an impressive upside potential of more than 50%.  

Attractive Technical Setup for Investing in Micron

Investors considering taking advantage of the entry opportunity based on these factors can only rely on an attractive technical setup to complete the picture. With a Relative Strength Index (RSI) of just 30, Micron shares are verging on extremely oversold levels. 

For context, the last time its RSI was this low was in September 2022, right around the time Micron was bottoming out after a 50% slide. It went on to rally 225% through last month's all-time high, so who's to say it won't do the same this time around?