The stock market drop following U.S. President Donald Trump’s tariff announcement last week has affected nearly every industry. Even those that aren’t directly in the line of fire are still vulnerable to the broader economic fallout, as the intensifying trade war has the potential to plunge the global economy into a recession.
Shares of semiconductor stocks, for example, have plunged as investors seem to fear that the high-flying sector is exposed to both cyclical risk and the effects of tariffs. While “bare die” semiconductors (unpackaged chips that are not inside a product) are excluded from tariffs, electronics and other products containing these chips are not exempt.
After Trump announced the “Liberation Day” tariffs, the Van Eck Semiconductor ETF fell as much as 16%, a steeper drop than the Nasdaq Composite. It’s been a quick reversal of fortune for a sector that had soared through 2023 and 2024 on a boom in AI demand fueled by the launch of ChatGPT.
With semiconductor stocks down sharply over the past week, there are a number of attractive discounts. One of the most appealing is Micron Technology (MU -10.03%), the integrated maker of memory chips.
Image source: Getty Images.
Where Micron stands today
Leading up to the tariff-fueled sell-off, Micron had reported impressive growth numbers, especially in the AI-driven data center segment. In the fiscal second quarter, which ended Feb. 27, the company reported overall growth of 38% to $8.05 billion. It noted strong AI demand, driving record data center dynamic random-access memory (DRAM) revenue.
The percentage of its revenue that came from data center and networking jumped from 25% to 55%, indicating it more than doubled over the last year. Its profits are soaring as well, with adjusted earnings per share up from $0.42 to $1.79.
Additionally, Micron has an advantage over its semiconductor peers, many of which use a fabless model and don’t produce their own chips. Micron has manufacturing facilities in the U.S., making it the only domestic producer of memory chips. Micron is set to receive more than $6 billion from the federal government from the CHIPS Act, and it should be favored as part of the Trump administration’s push to reshore manufacturing. In fact, it’s building the biggest chip fab in U.S. history right now.
Micron also produces chips in Asia, and its leading-edge chips are made in Japan and Taiwan. Nonetheless, its position as a domestic manufacturer gives it a leg up at a time of upheaval in trade relations.
The case for Micron
Micron stock has fallen sharply since the tariffs were announced, and its closing price of $65.54 is within range of where the company traded throughout fiscal 2023, before the effects of the AI boom hit. At that time, the business was suffering from a slowdown in smartphone and PC demand due to the end of the pandemic restrictions and a glut in memory chips.
In fiscal 2023, its revenue fell by roughly half to $15.54 billion, and it reported an adjusted loss of $4.86 billion, or $4.45 per share. In contrast, the business is much healthier today and benefiting from strong tailwinds in AI, which has made Nvidia Micron’s biggest customer.
Based on its trailing earnings, Micron now trades at a price-to-earnings ratio of 13, making the stock look like a bargain, especially if its momentum keeps up. The market seems to be pricing in a big effect on the chip sector, and it would certainly get hit in a global recession, but at the current price, Micron looks too cheap to ignore. The company is in a much stronger position than it was two years ago as it capitalizes on the AI boom, even though its stock price is the same.
That looks like a mistake. While the stock is likely to be volatile as the effects of the tariffs play out, Micron is well-positioned to be a long-term winner from here, given the AI demand, recent growth in the business, and the low share price. Patience with the stock should pay off.
Jeremy Bowman has positions in Micron Technology, Nvidia, and VanEck ETF Trust-VanEck Semiconductor ETF. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
