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Micron Stock Drops 8% Amid Concerns Over Margins

Micron Technology's shares fell 8% despite reporting strong fiscal Q2 results. Investors are worried about declining gross margins affecting future profitability. The overall sentiment is to sell, as these margin pressures could impact investment returns.

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AI Rating:   4

Overview of Micron's Performance
Micron Technology, Inc. reported a year-over-year revenue growth of 38.3% in the second quarter of fiscal 2025. However, it's important to note that this growth was overshadowed by significant concerns surrounding its gross margin decline. The company's non-GAAP gross margin fell to 37.9%, down from 39.5% in the previous quarter, indicating a sharp sequential decline, which raises red flags for investors.

Concerns Regarding Profitability
The marked decrease in gross margins is attributed to weaker NAND flash pricing and ongoing startup costs at a new DRAM production facility. This decline is particularly concerning because the outlook for the third quarter suggests a gross margin of only 36.5% at the midpoint. This forecasted compression indicates that margin challenges are expected to persist, casting doubt on Micron's ability to maintain its earnings growth amidst rising AI demand.

Impact of NAND Pricing Pressures
Micron is facing ongoing pricing pressures in its NAND flash segment, detrimental to its overall profitability. During the second quarter, the average selling price for NAND products dropped substantially, influenced by weak consumer electronics demand and excess market inventory. Although the company's high-bandwidth memory (HBM) products are witnessing strong demand, they have not sufficiently compensated for the pricing weakness in NAND products.

Technical Indicators
Recent trading activities saw MU stock move below the 50-day moving average, signaling a bearish trend. This technical indicator may further impact investor sentiment and drive stock prices down in the near term.

Conclusion for Investors
Despite the positive growth figures, the decline in gross margins and the presence of substantial challenges in the NAND market prompt a recommendation to sell Micron stock for now. The combination of deteriorating profitability, bearish technical signals, and ongoing margin pressures could hinder potential returns for investors in the short term.

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