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The last month hasn't been kind to Micron Technology (NASDAQ: MU) shareholders. The memory-chip maker's stock price fell by 40% over the 29 days from Oct. 7 to the close on Nov. 5. The company is particularly susceptible to shifts in supply and demand for memory, and various factors have impacted the outlook for both in recent weeks, much to the detriment of Micron's earnings potential.
But after that huge share price drop, investors may see an opportunity to put some extra cash to work in Micron stock. Here's what a $5,000 investment at today's price could be worth by 2030 based on its historical valuation range.
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It's not just Micron stock under pressure. The entire semiconductor industry has seen valuations decline over the past month. That's largely due to concerns over the outlook for artificial intelligence spending. As hyperscalers report increasing cash burn while spending heavily on new data centers, some investors have expressed doubts that their returns on investment will be high enough to justify the costs. With the vast majority of Micron's growth stemming from the data center build-out, its stock has been pushed lower.
There are additional factors specific to Micron and other memory-chip makers, too. Chinese competitor CXMT is reportedly increasing production of its HBM3 chips, the type of memory that is packaged with GPUs and other AI accelerator chips. Apple is also reportedly testing CXMT chips in Chinese-manufactured iPhones.
Meanwhile, high memory chip prices and supply shortages have driven up prices for consumer electronics, pushing tech companies to scale back the amount of memory they are putting in their devices. That leaves memory-chip makers more dependent on demand from artificial intelligence. If that falters, their ability to fall back on the consumer electronics segment will be more precarious.
In the wake of the Democrats' strong showing in the midterm elections, there's growing fear that the AI industry could face setbacks due to a tougher regulatory environment. UBS analysts estimate 30% of data center capacity additions planned for 2028 are at risk of delays. That could put further pressure on demand for the chips those data centers would need, in turn weighing on the pricing for Micron's memory.
And Micron management has already indicated that pricing for memory is nearing its peak. Management's 2027 forecast calls for "a more moderate rate of price increases." Peak pricing could hit in early 2028, and an influx of new production capacity could push prices significantly lower in 2029 and 2030. If data center build-outs slow down, those price declines could come sooner and be much steeper.
After Micron's precipitous drop, shares trade for just 3.7 times analysts' forward earnings estimates. That's near the low end of its historic trading range, and the multiple it typically trades at right at the peak of its earnings cycle. The rapid price drop suggests the market is signaling that analysts' earnings growth estimates are too optimistic, that the company may be closer to peak earnings than previously thought, or both.
Micron's massive spending today will translate into significant depreciation expense on its income statement once it starts producing chips in its new facilities. Combined with rising operating expenses and the expected decline in pricing later this decade, Micron's margins are set to decline considerably from the inflated levels it has seen recently. That could lead to a long and protracted down cycle after the sharp up cycle it's experienced over the last few quarters. That could be another reason to keep the earnings multiple conservative.
While analysts expect earnings to peak at $227.1 billion in 2028, they project a slow decline in earnings through 2030, reaching just $148.7 billion. Earnings are expected to continue declining in 2031 at a much sharper rate, falling to $65.5 billion. That should give investors pause about Micron commanding a significantly high earnings multiple until it shows signs that earnings have reached a trough. A trailing earnings multiple between 5 and 10 isn't unreasonable, which would put Micron's market cap between $750 billion and $1.5 trillion if analysts' estimates are accurate.
That's a huge range, and depending on where it lands within it, a $5,000 investment at today's price could be worth about the same amount in four years, or it could double. There are significant risks facing the company, and they're starting to show up. Investors looking for returns like those Micron has produced over the past year are unlikely to see them, but after its recent decline in share price, there's less downside risk left.
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Adam Levy has positions in Apple. The Motley Fool has positions in and recommends Apple and Micron Technology. The Motley Fool has a disclosure policy.
Micron Is Down 40% Since Oct. 7. History Suggests a $5,000 Investment Today Could Be Worth This Much by 2030. was originally published by The Motley Fool
