According to Barron's, Micron Technology (MU-US) fell on Tuesday (7th) due to a sharp decline in the stock price of South Korean memory chip giant, which dampened investment sentiment among U.S. peers. However, Micron is signing supply agreements with major customers, which is expected to provide some protection for the company in the long term.

Micron fell over 4%, as Ford's long-term bullish outlook could not withstand the selling pressure on memory stocks (Image: Shutterstock)

Micron's stock price closed down 4.7% at $938.38 per share, marking the lowest closing price since June 10. However, the stock has still surged 230% this year, with an increase of over 650% in the past 12 months, primarily due to the surge in demand for AI data centers, leading to a shortage of memory chips and driving up product prices.

Before Micron's decline, South Korean peer Samsung Electronics plummeted 6.9%. The company reported a 19-fold increase in operating profit for the second quarter but still failed to meet high market expectations. Another memory giant, SK Hynix, also fell 6.1%, just three days away from its listing on NASDAQ this Friday.

The market's reaction to Samsung's preliminary financial report is seen as profit-taking after the stock's significant rise over the past 12 months.

Saxo Bank analysts stated in a research report, "Following Monday's rebound, funds are rotating out of tech stocks, and selling pressure on Asian chip stocks has resurfaced, reigniting market concerns about overvaluation in AI."

However, looking beyond just the single-day trend, there are more signs indicating that Micron is attempting to lock in higher memory prices for the foreseeable future.

On Monday, Micron announced it had signed a "strategic customer agreement" with Ford Motor (F-US). This is one of Micron's 16 long-term supply agreements, which could secure approximately $100 billion in revenue for the company and help alleviate market concerns about the sustainability of current high prices and profit margins Barron's previously pointed out that with AI hardware driving a significant increase in memory demand, Micron is expected to break free from the typical economic cycle of the past, and its stock price could potentially double from current levels.

Ford and other long-term contracts are expected to account for about 40% of Micron's revenue, and the company hopes to further increase this proportion.

UBS analyst Timothy Arcuri interprets this as Micron's confidence in maintaining its gross margin between 70% and 75%. Although this is lower than the recent quarter's 85%, it is still well above the gross margin peak of about 62% in 2018.

Arcuri has given Micron a buy rating with a target price of $1,625. According to FactSet, the average target price for Micron among Wall Street analysts is $1,576