Micron Stock Is Near Bear-Market Territory. Here’s Why ASML’s Guidance Says Buy the Dip.

The company issued guidance for revenue between $49 billion and $51 billion and EPS between $29.73 and $31.73.

Given all that, why is MU stock falling in the last month? Simply put, investors seem to be taking profits in anticipation that the demand for memory and storage will become a glut that oversaturates the market. The fears have hit most of the major names in the sector, including Western Digital (WDC), SanDisk (SNDK), Samsung (SMSN.L.IX), and SK Hynix (SKHY). 

Here’s Where ASML’s Guidance Is Important

Now let’s look at ASML and why its recent earnings report is a positive for Micron and others in its space. ASML is unique in that it’s the only company that manufactures commercial EUV lithography systems. While deep ultraviolet (DUV) technology uses components and lenses to focus tiny light beams to make semiconductor chips, ASML’s EUV technology uses mirrors instead of lenses and allows it to perform tasks that are beyond DUV technology.

ASML reported second-quarter earnings on July 15, reporting revenue of 9.32 billion euros ($10.64 billion), up 21% from a year ago. It forecast third-quarter sales between 11 billion euros and 12 billion euros and increased full-year guidance to a range between 43 billion euros and 45 billion euros. Previously, ASML had projected full-year sales of between 36 billion euros and 40 billion euros.

Management also announced it is planning to increase its Low-NA EUV capacity by 30% in 2027 and is considering increasing it by another 30% in 2028. The company plans to make a similar expansion to its DUV immersion capacity.

“Ongoing AI-related investments and continued progress in AI technologies are driving demand for advanced logic and memory chips, further strengthening the semiconductor industry’s growth outlook,” CEO Christophe Fouquet said. “Our customers, in turn, continue to accelerate their capacity expansion plans.”

Wedbush Securities analyst Matt Bryson wrote in a note to clients that the capacity expansion plans are a positive signal to memory and storage companies.

“We view the increased 2027 outlook (and potential increase in 2028 EUV builds) as consistent with the strong demand we are seeing for both leading-edge logic and DRAM to support AI builds,” he wrote. “And, the timing of increased shipments fits our view that higher spend in 2027 will ultimately lead to increased output in late 2027/early 2028 (for memory in particular), albeit we are less certain when supply will ultimately match demand given continued growth in spend.”

MU Stock Is a Buy at a Discount

Now priced at a considerable discount, MU stock is an appealing buy right now. The median price target from 40 analysts is $1,492, representing a potential 56% upside in MU. Analysts have a consensus “Strong Buy” recommendation, with 36 of them recommending investors buy the stock and the other four with more moderate “Hold” recommendations.

The recent dip in MU shares seems to be a deep overreaction, coupled with some investors taking profits from a stock that’s been a high-flyer all year. ASML’s commentary and guidance are clear indicators that chipmakers are increasing, rather than decreasing, capacity and that there will continue to be strong demand for memory and storage for the foreseeable future.

On the date of publication, Patrick Sanders did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com