Micron Technology, Inc. (NASDAQ:MU) looks cheap by one of Wall Street's favorite valuation measures. But that apparent bargain may be exactly what makes the stock tricky. MarketVector Head of Research & Investment Strategy Josh Kaplan says semiconductor investors can misread low price-to-earnings ratios because earnings often peak before the cycle turns.

When Cheap Gets Complicated

Micron's forward P/E ratio has fallen into the single digits as earnings expectations have surged. Market data puts the stock at roughly 7 times forward earnings.

That can make Micron look inexpensive compared with many technology stocks. But Kaplan argues investors need to understand what those earnings actually represent.

"P/E ratios are often contrarian indicators," Kaplan told MarketDash in an exclusive email interview, pointing to Micron as an example of how cyclical semiconductor stocks can fool investors.

The issue is that memory is a cyclical business. When pricing and demand are strong, earnings can climb sharply, making the P/E ratio look unusually low. But if the cycle reverses, earnings can fall much faster than investors expect.

That can produce a strange outcome: the stock can look cheapest near peak earnings and most expensive near trough earnings.

The P/E Trap

Kaplan says investors may look at Micron trading around a 12-13 forward P/E in the framework he discussed and wonder, "how it can possibly be so cheap!"

But if those earnings are close to a cyclical peak, the low multiple may be telling investors less about valuation and more about where the earnings cycle currently sits.

"When the earnings cycle turns, and it will, earnings will drop precipitously," Kaplan said. He expects the stock price to fall as well, but notes that the P/E ratio could actually rise at trough earnings, potentially making the stock appear expensive just as the cycle is preparing to turn again.

That is the unusual part of the semiconductor valuation puzzle: a rising P/E does not automatically mean a stock has become more expensive in economic terms, just as a falling P/E does not automatically mean it has become cheaper.

What Investors Should Watch

Kaplan's warning comes as Micron heads into a period of enormous earnings expectations. Wall Street expects fiscal fourth-quarter adjusted earnings of $31.45 per share, versus $3.03 a year earlier, according to recent reporting.

For investors, the more important signal may therefore be what happens to earnings expectations after the peak rather than how low Micron's P/E looks today.

Kaplan's broader point is that semiconductors remain cyclical even during an AI boom. A cheap multiple is only as useful as the earnings underneath it.