Why Micron Stock Just Dropped Again
Key Points
Warren Buffett warns the stock market has been taking over by gamblers.
Micron's erratic stock price movements suggest it's one of the favorite stocks to gamble on.
Topsy-turvy Micron (NASDAQ: MU) stock took another tumble on Wednesday, sliding an unlucky 7.7% through 2:50 p.m. ET after Warren Buffett warned that it's becoming "tough to find values when everybody is preferring gambling" on the artificial intelligence revolution and similar themes.
Image source: Micron.
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Making sense of Micron
Investors have been running hot and cold on semiconductor stocks like Micron for weeks -- sometimes responding to the very same news with buying or selling, depending on the day of the week.
For example, after South Korea's SK Hynix (NASDAQ: SKHY) began selling stock on the Nasdaq last week, investors first bought computer memory semiconductor stocks on the theory that SK's CEO thought demand would outstrip supply for years. They then turned around and sold these same stocks a few days later, though, worried that SK Hynix's plans to increase production to satisfy this memory demand might hurt prices and profits for both SK and its competitors (like Micron).
So basically, Buffett is right: investors are taking each bit of news as it happens, and gambling on whether it might drive memory stocks up or down.
What's next for Micron stock
Does this mean investors are finally becoming rational by selling Micron stock, though? Not necessarily.
At 22 times earnings today, the stock doesn't look particularly expensive -- not when analysts polled by S&P Global Market Intelligence are forecasting a ten times improvement in earnings this year, and for profits to double again next year, and average 172% annual increases over the next five years. If Micron misses those estimates by half, it's still probably an incredible bargain at today's prices.
Simply put, if you do the math, there's no need to gamble on Micron: This stock is still plenty cheap to buy.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.