The Market Is Wrong: 3 Reasons Micron's Stock Should Be Up, Not Down After Earnings

Billy Duberstein, The Motley Fool

Tue, Mar 25, 2025, 4:00 AM 7 min read

Shares of memory giant Micron (NASDAQ: MU) fell more than 8% last Friday following its late Thursday earnings release.

But does the market have this one wrong?

Micron has become one of the most important players in the artificial intelligence (AI) races over the past two years. While some legacy Micron businesses are currently in a downturn, investors may be taking too short term of an approach, missing the AI forest for the legacy market trees.

Looking under the hood of Micron's recent earnings, there were actually several long-term positives that should continue to improve revenue and profits through the rest of this year and into 2026.

In its fiscal second-quarter 2025, Micron grew revenue 38% year over year to $8.05 billion, while adjusted (non-GAAP) earnings per share (EPS) grew 271% to $1.56. Both figures came in ahead of expectations.

On the back of the solid earnings beat, shares initially rose after-hours but then plunged the next day. The downturn appears to be due to guidance, specifically for gross margins in the current quarter. While revenue is projected to be up nearly 10% quarter over quarter, earnings are projected to be just flat, as adjusted gross margins are projected to fall to 36.5%, down 1.5 percentage points, while operating expenses are projected to increase by about $100 million.

Short-term traders appear overly concerned with the near-term margin trajectory. But those concerns are likely overblown.

Management attributed the negative margin impact to increased sales of lower-margin consumer electronics memory, which will stage a recovery after a soft quarter. On top of that, management noted the NAND flash market continues to be weak. NAND prices actually plunged by a high-teens percentage last quarter alone.

Still, the negativity appears to be within less important parts of Micron's business. NAND only made up 26% of revenues last quarter, and the consumer markets are all becoming less important as Micron's enterprise data center business continues to take off thanks to AI.

Those good trends around AI and DRAM should eventually overtake the bad later in 2025, and longer-term investors should also be highly encouraged by three overwhelming positive trends described in the earnings release, too.

Perhaps the most consequential change to the memory industry in recent years has been the emergence of high-bandwidth memory (HBM) used in AI applications.

On its prior call in December, Micron indicated it saw the HBM market growing from $16 billion in 2024 to $30 billion in 2025, then to over $100 billion by 2030. That's a massive, completely new segment that would exceed the entire pre-HBM DRAM industry by that time.