Micron Technology (MU 2.20%) is a world-leading producer of memory (DRAM) and storage (NAND) semiconductors for a variety of applications. Its chips power some of the world's favorite electronics, including 5G-enabled smartphones and data centers that host cloud-based online experiences.

Micron's stock price is down 42% from its all-time high as weakness in the broader economy is pointing to a sharp contraction in the company's financials in fiscal 2023. But Micron's leadership team is stepping up and making all the right moves to position the company for this new reality, and that could lead to a strong recovery in its stock price. 

Here's why investors will want to take this opportunity to buy the dip. 

Micron is navigating a difficult economic landscape

The semiconductor industry is cyclical. It tends to perform better when the business cycle is on the upswing because companies are investing more money in upgrading their product portfolios and infrastructure. But when the cycle turns down -- as it did in 2022 -- the reverse happens, and Micron has felt the effects across almost every part of its business.

Like every other producer of advanced computer chips, its consumer segments are suffering the most right now. The company is seeing far less demand for its chips that go into personal computers and smartphones because high inflation and rising interest rates have constrained household budgets. 

Micron also expects data center demand to come in below trend for this year as a whole. However, its next-generation DDR5 memory chips could spur a new growth phase for the company in the medium to long term. The data center industry is expected to transition to this technology throughout 2023 because memory bandwidth is a bottleneck for data centers that are using the latest processors. DDR5 delivers more bandwidth per CPU core than ever before, which alleviates that issue so data centers can unleash maximum computing power from their hardware.

But interestingly, in the fiscal 2023 first quarter (ended Dec. 1, 2022), Micron did see strength in its automotive segment with revenue growing 30% year over year. It was led by next-generation in-car infotainment systems, plus advanced driver assistance systems (ADAS), some of which lay the groundwork for autonomous self-driving technology. This is one area where Micron expects robust growth this year.

Micron's overall financials won't be pretty in fiscal 2023

Micron's revenue came in at a record high of $30.7 billion in fiscal 2022, but amid the difficult economic environment, Wall Street analysts expect that figure to drop sharply to $16.2 billion this year. 

The below chart shows just how lumpy Micron's revenue is from year to year due to the cyclical nature of the semiconductor industry. 

A chart of Micron's annual revenue from fiscal 2018 to fiscal 2024 (estimated).

Such a steep drop in revenue leaves Micron exposed to a substantial reduction in its profitability. It's difficult to quickly adjust the cost structure of a business of this size, so when sales fall and expenses aren't cut in proportion within the same time frame, the company's bottom line is eroded (more on that in a moment). 

Case in point, Micron generated $8.35 in non-GAAP (adjusted) earnings per share (profit) in fiscal 2022, and analysts are preparing for the company to lose $2.25 per share in fiscal 2023, with a return to positive territory in fiscal 2024. 

Why it's time to buy Micron stock on the dip

To address the tough economic climate and Micron's expected dip in financial performance in fiscal 2023, the company is making a series of adjustments. It's slashing its capital expenditure by 40% for the year, which is key to getting its earnings per share back into positive territory -- though it could result in slower revenue growth in the long run. Additionally, it's suspending employee bonuses companywide, it's giving the executive team a pay cut, and it will reduce its headcount by 10% during the year.

These are difficult but positive steps to turning Micron's financial fortunes around, and investors are able to buy its stock at a 42% discount to its all-time high and reap the potential upside if the company does return to growth in fiscal 2024 as expected.

Micron stock looks relatively cheap based on the company's $6.14 in non-GAAP trailing-12-month earnings per share. It places the stock at a price-to-earnings (P/E) ratio of just 9.2, which is less than half the valuation of its peers represented by the iShares Semiconductor ETF. It trades at a P/E of 20.3. 

Of course, the caveat is that Micron's earnings are expected to contract throughout fiscal 2023. 

From data centers to cars, semiconductors will only grow in importance over time. With the onset of new technologies like artificial intelligence and electric vehicles, there's also a chance the industry becomes less cyclical over time as chips power more areas of consumers' lives. In that context, Micron is a long-term story trading at a very attractive price right now.