Admittedly, it’s a confusing time to be a Micron Technology, Inc. (NASDAQ:MU) shareholder. Since closing at a year high of $32.50 on June 7, MU stock is currently down nearly 3.5%. Even more bizarre, Micron enjoyed an impressive third-quarter earnings performance.
The end result of that good work was a sizable decline in market value the following day. Is its phenomenal run finally shuttering, or is there still room for optimism?
I sympathize with the panic-sellers for a number of reasons. First, over the trailing year-and-a-half period, MU stock essentially tripled in value. Although the magnitude is far different, Advanced Micro Devices, Inc. (NASDAQ:AMD) also benefited from the same semiconductor renaissance. Yet AMD hit a closing peak of $15.20 on Feb. 27. In the following trading sessions, AMD struggled to regain its former momentum. Even worse, AMD presently looks fragile.
Another reason for the profit-taking is the potential double-top formation at play. In the second-most recent bull rally for Micron stock, shares climaxed just above $36. That’s the most logical target for the bulls in this current market phase. However, MU consistently demonstrated frustration at the $32 level. Under standard technical analysis, Micron optimists are tiring, and are exiting at what they perceive is the best price possible.
When technology powerhouses Nvidia Corporation (NASDAQ:NVDA) and Intel Corporation (NASDAQ:INTC) are also slogging through a weak August, it just makes sense to lighten the exposure to MU stock. While that’s a shrewd nearer-term strategy, I caution against holding the “sell” button for too long.
Don’t Ignore Growth Opportunities for MU Stock
Going back to the Q3 earnings report, the reason why Micron stock sold off harshly was lack of conviction. Although it was an outstanding beat, InvestorPlace contributor Vince Martin noted that financial profits from favorable semiconductor pricing hurts MU shares. The other big players in the NAND and DRAM markets — SK Hynix Inc (OTCMKTS:HXSCF) and Samsung Electronics (OTCMKTS:SSNLF) — likewise see their profits rise.
At that juncture, “those majors build up capacity. Prices fall, and so do earnings, and so do shares. It’s a cycle that can play out in only a few quarters, as witnessed by the recent roller-coaster ride in Micron shares.”
Evidently, the markets view the earnings boost as a one-time event. Color commentator Jim Cramer also expressed the same opinion, wondering aloud if DRAM prices entered bubble territory. Additionally, Cramer worried about a potentially brewing supply glut and ramped-up competition.
But according to Martin, such thinking ignores the fact that “over half of DRAM sales come from server and specialty applications — both growing markets. Over 40% of NAND revenue comes from solid state drives (SSDs) and automotive/industrial.” As Nvidia will tell you, automotive demand for advanced memory chips is huge, and will only get bigger. To walk away completely from MU stock is to ignore already proven sales and earnings opportunities.
Moreover, InvestorPlace contributor Chris Lau writes that “Micron is strategically positioned to benefit from the growth in demand for graphics cards and related technologies requiring high-performance memory.” Specifically, Lau mentions that MU pumped production of discrete DRAM, which is used in high-end graphics cards.
Why is this important? Because Bitcoin and cryptocurrency miners favor these premium GPUs. One of the core reasons why AMD has performed so well financially is due to digital-coin mining. This is one trend that absolutely will not go away.
Micron Can Hold the Line
We should also remind ourselves that compared to global semiconductor competitors, Micron stock is fundamentally sound. Certainly, elements exist that I don’t particularly care for, such as rising debt levels and free cash flow concerns. On the flipside, Micron has strong profitability margins relative to the industry, as well as robust, top-line growth.
In case of any slowdown in the semiconductor industry, I’m confident that MU stock can weather the storm. And I’m absolutely sure that Micron can handle industry ugliness better than several of its peers.
Finally, regarding the technicals, I’d also refrain from making too many rash moves. Yes, MU is softening near its peak for the year, a similar dilemma for other sector players. But largely, we’re talking about modest losses in the single digits. We’re not seeing a genuine bear market territory. Given the positive fundamentals, I give Micron the benefit of the doubt.
It’s not easy being bullish at the top of any rally. Fears of losing money outweigh the potential joys of making money. But MU stock isn’t running on speculative fuel alone. A real basis backs up the optimism. Unless the catalysts I mentioned disappear, giving up entirely on Micron is premature.
As of this writing, Josh Enomoto was long Bitcoin.
