Micron Technology (NASDAQ:MU) suffered a sharp selloff on Monday, with shares dropping 7.6% to $1,046.06 in late-morning trading, erasing roughly $98 billion in market capitalization. The decline came as investors reacted to news of massive memory chip capacity expansions planned by South Korean rivals Samsung Electronics and SK Hynix, stoking concerns that an oversupply could undermine pricing in the AI-driven memory market.
South Korean Capacity Plans Spark Oversupply Worries
South Korea's government-backed initiative to build a semiconductor mega-cluster in the southwest of the country involves an investment of 800 trillion won, or approximately $518.30 billion. Samsung and SK Hynix each plan to construct two large-scale fabrication facilities there, according to Reuters. The news sent Samsung shares down 4.86% and SK Hynix down 1.68% on Monday, as analysts flagged potential supply gluts in the memory segment.
However, SK Hynix Chairman Chey Tae-won cautioned that the timeline for such projects is long, noting that it took nine years to establish a similar cluster in Yongin. He emphasized that chip factories require "massive land, power, water and talent," suggesting that new capacity may not come online for years. This delay is a key factor for Micron bulls, who argue that the company's multi-year customer agreements provide a buffer against near-term oversupply.
Contract Floor Mirrors Market Cap Loss
The magnitude of Monday's market value decline—roughly $98 billion—closely matched the $100 billion minimum revenue threshold that Micron has secured from 14 of its 16 strategic customer supply agreements. Those take-or-pay contracts, which feature fixed or price-capped terms starting in 2026 and running through 2030, are designed to provide revenue stability. CFO Mark Murphy noted that customer agreements have already contributed about $100 billion in remaining performance obligations (RPO), with actual revenue expected to exceed that figure over the contract life. Additionally, approximately $18 billion of an expected $22 billion in customer commitments are anticipated as cash deposits, which will begin appearing in financing cash flow in the fiscal fourth quarter.
Earnings Strength Contrasts with Market Sentiment
Micron's latest quarterly results underscore the company's strong position in the AI memory market. Fiscal Q3 revenue reached $41.46 billion, up from $23.86 billion in Q2 and $9.30 billion in the year-ago quarter. GAAP gross margin expanded to 84.6%, compared to 74.4% last quarter and 37.7% a year ago. Operating cash flow surged to $25.39 billion, and adjusted free cash flow came in at $18.3 billion. CEO Sanjay Mehrotra cited "record fiscal Q3 financial results and an even stronger outlook for Q4" as evidence of memory's strategic value in the AI era. The company guided fiscal Q4 revenue of $50.0 billion, plus or minus $1.0 billion, with gross margin near 86%.
Price-Driven Growth
The earnings beat was driven primarily by higher average selling prices rather than volume. In its 10-Q filing, Micron reported that DRAM revenue rose 67% sequentially, with average selling prices increasing in the low-60% range while bit shipments grew only low-single digits. NAND revenue jumped 99%, fueled by a mid-80% average selling price increase, while bit shipments rose just mid-single digits. This price-dependent growth exposes Micron to margin risk if pricing growth slows before supply aligns, a scenario that the company itself acknowledged, warning of a "meaningful moderation in the rate of price increases" in Q4 gross margin guidance.
Analyst Optimism Amidst Selloff
Despite the market's negative reaction, some analysts remain bullish. Ben Barringer, head of tech research at Quilter Cheviot, told Reuters that "greater supply visibility and continued tightness support pricing across the ecosystem." D.A. Davidson analysts called Micron's outlook "a new era" and raised their price target to $2,000. However, Monday's trading suggests that investors are discounting the stock's near-term upside, focusing instead on the risk that new capacity could pressure prices before the contract floor fully kicks in.
Market Context
The broader tech sector held up better than Micron, with the Invesco QQQ Trust (NASDAQ:QQQ) rising 0.7% and NVIDIA (NASDAQ:NVDA) gaining 0.6%. The VanEck Semiconductor ETF (NASDAQ:SMH) slipped 0.5%, while the iShares Semiconductor ETF (NASDAQ:SOXX) fell 1.0%. The S&P 500 ETF (NYSEARCA:SPY) added 1.1%, underscoring that the selloff was concentrated in memory stocks. Micron's 7.6% drop against a rising QQQ highlights investor anxiety over the potential for oversupply to undermine the pricing power that has driven the company's recent outperformance.
