MW Micron's stock falls into a bear market - and it's now the cheapest in the S&P 500
By Britney Nguyen and Philip van Doorn
Micron's price-to-earnings multiple has compressed dramatically, as earnings expectations have surged and the stock has fallen.
The combination of a swift recent decline in memory stocks and a rapid rise in Micron Technology's earnings estimates has made the memory company's shares incredibly cheap.
Just how cheap? Micron Technology's stock now trades at 4.5 times expected earnings per share for the next 12 months, based on the consensus estimate among analysts polled by LSEG. That makes the chip stock the least expensive in the S&P 500 on a forward price-to-earnings basis.
The next cheapest stocks in the index are Global Payments, at a forward P/E of 4.8; Charter, at a valuation of 4.8; and Viatris Inc., at 5.4.
Micron's stock is trading far more inexpensively the S&P 500 at large, which has a weighted forward P/E of 20, and the S&P 500's information-technology sector, which has a forward P/E of 21.1.
Shares of Micron fell 7% on Thursday to close at $355.46. In doing so, they entered bear-market territory, with a decline of 23% from their closing high of $461.73 on March 18. A bear market is defined as a drop of 20% or more from a recent peak.
The stock's six-session slide comes as earnings expectations have climbed dramatically, which is why Micron's price-to-earnings ratio has become so compressed. For context, the stock traded at 7.9 times the consensus 12-month EPS estimate as of Dec. 31.
Micron's rolling 12-month EPS estimate has increased to $79.58, from $44.10 at the end of February and $35.97 at the end of last year. Analysts recently lifted their estimates in response to upbeat pricing and demand commentary on Micron's earnings call last week.
Even though profits are expected to soar further, Micron's stock has come under pressure since the report, reflecting concerns about an eventual peak in the memory market now that companies are making moves to increase production capacity down the road.
Memory-chip prices - and profits - have shot up because there has been an extreme imbalance between supply and demand, allowing Micron and its few competitors to charge up for products that have become essential to the artificial-intelligence buildout. Micron is forecasting an 81% gross margin for the current quarter, an unusually high margin for a hardware manufacturer.
But increased capacity risks cutting into the company's pricing power, suggesting that elevated margins won't be sustainable.
What's more, Micron has to spend up to boost production. It recently lifted its capital-expenditure forecast to $25 billion, from $20 billion, for this fiscal year and told investors to expect even heavier spending next year.
And investors have been burned by memory stocks in the past. The memory industry is historically cyclical, with Micron posting a net loss as recently as 2023.
Deutsche Bank analyst Melissa Weathers wrote recently that investors were likely exercising more caution "given past memory bust cycles," adding that those fears are "difficult to disprove in the near term."
Finally, Thursday's decline for Micron's stock came alongside a broader technology-sector selloff that hit momentum-oriented stocks especially hard. Mizuho trading-desk analyst Jordan Klein told MarketWatch that this was "all part of a broader market unwind or rotation out of [semiconductors] and big AI-hardware winners."
Below are the 10 cheapest stocks in the S&P 500 currently on a forward P/E basis: