Micron shares tumble 12% and breach July low

Micron's stock price suffered a sharp decline on Monday, falling 12% and falling through the support level at the July low.

Semiconductor shares experienced broad losses as investors reassess the speed of AI infrastructure development. Several factors are driving this shift in sentiment:

1. Recent election results indicate strong voter opposition to data centers, as 40 out of 41 direct votes on the issue were defeated and numerous pro-data center candidates lost their races.
2. Initially, the market rewarded hyperscalers for those outcomes, suggesting that reducing spending could boost stock prices.
3. Multiple reports indicate that powering the current pace of data center construction is unfeasible.
4. Even if data centers are built, public resistance will drive up costs as companies must commit to constructing all associated power infrastructure, effectively taking them off the grid.

On the other hand, Micron is currently generating substantial profits and has a strong order backlog. The actual FY26 result was $74.33 per share, which gives it a price-to-earnings ratio of 9.3 times this year's earnings. Furthermore, consensus estimates increase to $177 for the fiscal year that just began, translating to just 4 times earnings. For 2028, consensus rises to $212, though that projection should not be weighted too heavily.

The company has stated that the industry will face tighter supply constraints in 2027 and 2028 compared to 2026. Regarding HBM, it noted that a substantial portion of output has been sold. At the end of the quarter, Micron also indicated that over 75% of production is committed.

Significantly, Micron is working to reduce its typical cyclicality. The company has signed 26 strategic customer agreements that are expected to cover more than 35% of cumulative revenue through 2030. Roughly 75% of that revenue comes with defined pricing arrangements, mainly floors and ceilings. These are multi-year take-or-pay contracts.

Nevertheless, there is considerable variation among analysts' revenue estimates for the next two years.

The technical picture is concerning. The breakout below the July low has breached support, bringing the stock back to levels seen in May.

Caterpillar, another stock favored in the data center buildout theme, has already turned negative for the year after gaining 86% year-to-date in late June. The market may be reacting to technological shifts from advanced models requiring less memory, or it could be a response to the buildout itself.

An alternative possibility, which I consider highly likely, is that the market is driven by irrational, emotional behavior. It is dominated by fast-money options traders who trade based on momentum. Little attention is paid to earnings except on report days. Apart from that, it is all about AI sentiment, and currently that sentiment is waning.

Nevertheless, I believe those earnings figures are realistic and it is difficult to envision a complete collapse before 2029. This would imply that roughly 3 times next year's earnings represents an absolute floor, around $530. Additional support exists at $661, the mid-May low.

Micron is expected to report its next earnings in mid-to-late December.