Shares of memory chip manufacturer Micron Technology (MU 0.93%) have been hit hard over the past month, and the announcement of tariffs last week by the Trump administration added fuel to the fire. Micron stock has dropped more than 35% from its one-month high, and it's down nearly 60% from its 52-week high.
Should investors buy the dip? Or is Micron stock poised to drop further as economic uncertainty ramps up?
The good: Soaring demand for AI chips
Artificial intelligence (AI) accelerators generally use high-bandwidth memory (HBM) to facilitate the computations necessary to train and run advanced AI models. HBM is a real bright spot for Micron right now. The company has been ramping up manufacturing capacity for these chips, and it broke ground earlier this year on an HBM advanced packaging factory in Singapore.
Micron has fully sold out its HBM output for 2025, and it's currently working on agreements with customers for 2026. The company expects its HBM total addressable market to reach $35 billion this year.
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Key Data Points
In the second half of this year, Micron's HBM3E should account for most of the company's HBM shipments. HBM3E results in meaningful power reduction over competing products, and it will help the company's total HBM revenue reach the multibillion-dollar mark for the current fiscal year.
As long as demand for AI accelerators and AI servers remains robust, Micron will benefit from booming sales of HBM.
The bad: A potential economic slowdown
The broad tariffs enacted by the Trump administration will raise prices in the U.S. for PCs, smartphones, and other gadgets that use Micron's DRAM and NAND chips. Higher prices combined with a potential recession triggered by the tariffs could cause demand to plunge.
Memory chips are largely a commodity, which means Micron has no real pricing power. Instead, pricing is a function of supply and demand. During periods when demand outstrips supply, per-bit memory chip prices can hold their ground or even rise. Micron continually works to reduce its per-bit manufacturing costs, so this situation can lead to soaring profits.
On the flip side, when demand falls short of supply, per-bit prices can plunge. This leads to a scenario where prices fall faster than cost reductions, pushing Micron's profits lower. In severe downturns, the company's bottom line can tumble into negative territory.
Management can slash production, but ending a downturn requires players across the industry to do the same. That won't necessarily happen right away, since some competitors might use the opportunity to increase their market share.
If these tariffs aren't watered down or rolled back soon, demand is going to become a problem for Micron. TrendForce recently downgraded its outlook for 2025 shipment growth for everything from AI servers to smartphones. A potential slowdown in AI server shipments is particularly concerning because HBM is Micron's best opportunity right now.
Should you buy the dip on Micron stock?
For me, the answer is not yet. Shares of Micron have declined significantly, but I don't think they're fully pricing in the potential for a severe downturn in the memory chip industry. It can be easy to forget how quickly Micron's profits can vanish when memory chip prices begin tumbling. Such a scenario looks increasingly likely as tariffs upend the global economy.
Micron has around $7.5 billion in cash on its balance sheet, and its debt is manageable. The company is in a good position to weather the storm, but it's difficult to know right now how long the storm will last. Given the immense uncertainty, holding off on buying Micron seems like the right play.
