Things are starting to take a turn for the worse for chipmaker Micron (NASDAQ:MU).

Once a red-hot chip stock that could do no wrong, Micron stock has sharply reversed course since peaking in May at $64 per share. Today, Micron stock trades hands at $46 — roughly 30% off its May highs.

What went wrong?

To be clear, nothing has gone wrong yet. Instead, Mr. Market is looking at Micron as a company whose golden era is behind it. Micron has benefited from an unusually favorable supply-demand situation in the memory market which has been characterized by robust demand and limited supply, the combination of which has caused Micron profits to soar.

While demand is expected to remain robust, supply is expected to start ramping over the next several quarters and years. Increased supply in the memory market will dilute Micron’s pricing, and profits will drop. No one really knows how much profits will drop, and that is creating a whirlwind of uncertainty surrounding MU stock. Mr. Market doesn’t like uncertainty. When you get uncertainty, Mr. Market tends to sell first, and ask questions later.

That is exactly what is happening with MU stock. Present uncertainty regarding go-forward earnings growth prospects is here to stay. As such, Micron stock will remain weak. But, if earnings shake out the way I expect them to, near-term instability in Micron stock will eventually create a buying opportunity.

Micron Stock Is Unstable For Now

As go profits, so goes Micron stock.

That has been the trend which has defined Micron stock for the past two decades, and it never fails. When profits soared in the late 1990’s, Micron stock soared. When profits dropped in the early 2000’s, Micron stock dropped. Profits rebounded in 2003. So did Micron stock. Then, they dropped into 2008. So did Micron stock. Profits rebounded after 2008, started dropping in 2010, rebounded in a big way in 2013, started dropping again in 2015, and then rebounded again in 2016.

Micron stock followed the exact same trajectory.

In other words, regardless of valuation, Micron stock follows its earnings trajectory. When earnings are trending higher, Micron stock goes higher. When earnings are trending lower, Micron stock goes lower

It’s that simple. And, from that perspective, the near-term outlook on Micron stock isn’t all the great. Consensus estimates call for earnings to peak this year, and then drop over the next two years. If that does happen, history tells us that Micron stock will drop, too.

As such, with so much uncertainty regarding where earnings will go over the next few years, Micron stock looks unstable here and now.

Long-Term Upside Looks Compelling In This Scenario

Although I don’t pretend to be 100% sure of where Micron’s earnings will go over the next few years, I do have an estimate based on history. If that estimate becomes a reality, then current instability in Micron stock will eventually create a great buying opportunity.

Historically speaking, these earnings cycles for Micron follow a pattern. Specifically, the peak-to-trough earnings decline during a supply ramp usually lasts two years, and takes off about $4 in earnings per share. Earnings are expected to peak this year at $12 per share. Thus, history conservatively says earnings will stabilize around $7 to $8 per share in two to three years.

I am comfortable with this estimate. The memory market is one defined by huge demand and limited supply right now. While supply is ramping, demand should remain huge because of secular growth in Micron’s end-markets. When you look at markets like data-centers, cloud, AI and automation, you are looking at nascent markets that are just scratching the surface of their global growth potential. As such, growth in those markets should remain big, and demand for MU product should remain robust for the foreseeable future.

Assuming Micron’s earnings do stabilize around $7.50 in two to three years, Micron stock could trade at nearly $70 in one to two years (assuming a historical average multiple of nine time forward earnings). Thus, if history repeats itself and earnings stabilize in two to three years, present instability will eventually result in a huge rally for Micron stock.

Bottom Line on MU Stock

In the near-term, Micron stock is unstable due to significant uncertainty regarding where earnings go next. But, in the long-term, present instability will eventually birth a buying opportunity, once more clarity arises as to how profits will trend over the next few years.

As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.