Micron Technology, Inc. MU shares plunged 8% last Friday despite the company reporting better-than-expected second-quarter fiscal 2025 results and offering upbeat guidance for the third quarter. The steep sell-off was driven by growing concerns over its deteriorating gross margin, which overshadowed the otherwise solid revenue and earnings performance.

Micron Technology, Inc. Stock Price, Consensus and EPS Surprise

Micron Technology, Inc. price-consensus-eps-surprise-chart | Micron Technology, Inc. Quote

With Friday’s sell-off, MU stock’s year-to-date (YTD) gain has shrunk to 12.6% from 22.4% the day before. However, the stock’s YTD rise has outperformed the Zacks Computer – Integrated Systems industry as well as the returns of semiconductor giants, including Broadcom AVGO, NVIDIA NVDA and Marvell Technology MRVL.

YTD MU Stock Price Return Performance

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Despite Micron's efforts to capitalize on rising artificial intelligence (AI)-related demand, margin pressures and pricing challenges raise red flags, making MU stock a risky bet for now. Here’s why it may be prudent for investors to sell the stock.

Micron’s Gross Margin Decline Paints a Grim Picture

While Micron impressed with 38.3% year-over-year revenue growth in the second quarter of fiscal 2025, its profitability came under significant pressure. The company’s non-GAAP gross margin declined to 37.9%, down from 39.5% in the previous quarter, marking a sharp sequential fall. This deterioration was driven by weaker NAND flash pricing and ongoing startup costs at its new DRAM production facility in Idaho.

More concerning is the company’s margin outlook. For the third quarter, Micron guided for a gross margin of 36.5% at the midpoint, signaling further compression. This weaker-than-expected outlook, despite record sales in its high-bandwidth memory (HBM) segment, indicates that margin pressures are likely to persist.

Falling profitability, even amid strong AI-driven demand, raises questions about Micron’s ability to capitalize on the booming AI market. If the company cannot maintain healthy margins, future earnings growth could be constrained.

NAND Pricing Pressures Weigh on Micron’s Profitability

Micron continues to face pricing challenges in its NAND flash segment, which is weighing on its overall profitability. In the second quarter, the average selling price for NAND products dropped in the high-teens percentage range on a quarter-over-quarter basis. This sharp decline reflects weak consumer electronics demand and excess inventory in the market.

While Micron’s HBM3E and AI-driven memory products are seeing robust demand, these high-margin products are yet to offset the pricing weakness in NAND. Until the NAND market stabilizes, Micron’s gross margins are likely to remain under pressure.

Technical Indicator Signals Bearish Trend for Micron

Adding to the concerns, the stock moved below the 50-day moving average last Friday, signaling a bearish trend for MU stock in the near term.

MU 50-Day SMA Signals Bearish Trend

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Conclusion: Sell Micron Stock for Now

Despite Micron’s better-than-expected second-quarter results and optimistic revenue and EPS guidance for the third quarter, its deteriorating gross margin is a glaring warning sign. The sequential decline in profitability, coupled with pricing pressures and bearish technical indicators, make MU stock a risky bet at current levels.

While Micron remains a long-term beneficiary of the AI boom, the near-term headwinds, including ongoing margin contraction and pricing challenges, could weigh on the stock. It is prudent for investors to exit investment from this Zacks Rank #4 (Sell) stock for now and consider re-evaluating once the margin trajectory stabilizes.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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