Why Micron Stock Dropped Today

Key Points

• Micron beat on sales and earnings last night.

• Management also gave good guidance for fiscal Q1 2026, already underway.

• But Micron's free cash flow last year was very, very weak relative to reported earnings.

• 10 stocks we like better than Micron Technology ›

Micron Technology (NASDAQ: MU) stock fell 2.8% through 3:15 p.m. ET Wednesday despite beating earnings and giving strong guidance last night.

Heading into its fiscal fourth-quarter 2025 report, analysts forecast Micron would earn $2.86 per share on $11.2 billion in revenue. In fact, Micron earned $3.03 per share (adjusted for one-time items) in the period ended Aug. 28, and sales were $11.3 billion. Management forecast strong sequential growth in both sales and profits in fiscal Q1 2026.

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Micron Q4 earnings

Despite investors giving Micron stock the cold shoulder today, Micron's numbers looked red-hot. Quarterly sales grew 45% year over year. Gross profit margin gained nearly 10 full percentage points, rising to 44.7%, and operating margin gained 12 points to 32.3%.

On the bottom line, earnings as calculated according to generally accepted accounting principles (GAAP) rose to $2.83 -- not quite as good as the adjusted earnings, but still more than triple what Micron earned a year ago.

For the full year fiscal 2025, Micron booked $37.4 billion in revenue (49% sales growth), and earned $7.59 per share.

Is Micron stock a buy?

So why are investors upset with the results? Here's one possibility: Although not highlighted in the report, buried deep within the cash-flow statement it appears that while Micron delivered powerful operating cash flow in fiscal 2025 -- $17.5 billion, or more than twice the cash generated in fiscal 2024 -- Micron then had to turn around and spend almost all its cash on capital expenditures.

The company still ended up with positive free cash flow for the year, but only $1.7 billion. Turns out, for every $1 in GAAP profit the company earned, it generated only $0.20 in real cash profit.

With numbers like those, I might be tempted to sell Micron stock myself.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.