Micron (MU) Dips Ahead of Earnings: Is the AI-Driven Rally Cooling?

Micron Technology Inc. (MU) is slated to release its fiscal fourth-quarter 2025 earnings report tomorrow after market close. The stock is currently priced above $162 in pre-market hours. However, can Micron sustain its impressive growth trajectory driven by the AI boom, or is a correction on the horizon?

Analysts expect Micron to report an average estimated EPS of $2.86, more than double the $1.18 EPS from the same quarter last year, signaling a significant rebound in profitability. Revenue is projected to reach $11.15 billion, representing a robust 43.92% year-over-year growth. These estimates reflect growing optimism around Micron’s recovery, driven by rising demand in AI, data center, and memory markets.

In the third quarter of fiscal 2025, Micron reported revenue of $9.3 billion, a 37% year-over-year increase. Adjusted earnings per share (EPS) more than tripled, reaching $1.91. HBM revenue surged by 50% from the prior quarter, and overall data center revenue more than doubled year-over-year. This performance prompted Micron to raise its Q4 guidance, projecting revenue between $10.4 billion and $11.0 billion, with adjusted EPS ranging from $2.35 to $2.65.

Analysts have largely been bullish, with many raising their price targets following the Q3 earnings report. Piper Sandler, for example, increased its price target to $165, citing Micron's market share gains in HBM and robust data center revenues.

Micron has also been strategically expanding its U.S. investments, committing approximately $200 billion to build a second advanced memory fabrication plant in Boise, Idaho, and expand facilities in Manassas, Virginia. This aligns with the U.S. government's efforts to bolster domestic semiconductor manufacturing, with Micron receiving $6.1 billion in support under the CHIPS and Science Act.

While the prevailing sentiment surrounding Micron is overwhelmingly positive, it's crucial to consider potential headwinds. Is the market overestimating the sustainability of the AI boom? While AI is undoubtedly transformative, the current level of investment and hype may be unsustainable. Companies are pouring billions into AI infrastructure, but the return on those investments isn't yet fully realized.

If the AI market cools down faster than anticipated, Micron's growth could stall, leading to a significant correction in its stock price. Furthermore, the massive expansion plans, while strategically sound given government incentives, could lead to oversupply in the long run if demand doesn't keep pace. This could trigger a price war, eroding Micron's profitability.

The strong Q3 results and raised guidance may already be baked into the current stock price, leaving little room for further upside surprise. Therefore, while Micron has undoubtedly made impressive strides, one should exercise caution and consider the potential risks before jumping on the bandwagon.

The market's reaction to the upcoming earnings report will be crucial. Any signs of slowing growth, margin pressure, or cautious forward guidance could trigger a sell-off. Conversely, another strong quarter could propel the stock to new highs.