After reaching levels not seen since the dot-com boom, Micron Technology, Inc. (NASDAQ:MU) shares got hit with selling this week. After closing at $49.14 last Wednesday, MU stock is trading at $43.56 as of this writing — though it is still up 98% for the year.
Yet, there are some Wall Street analysts that are getting antsy about the chip industry. Morgan Stanley (NYSE:MS) analyst Shawn Kim noted recently: “Given our view of the cycle, we cannot recommend the sector until the market recognizes mounting pressure on NAND prices and slowing logic chip growth momentum in the near term. … This reflects our negative view of prospects for the global memory industry, which is currently at a peak.”
Interestingly enough, another MS analyst, Joseph Moore, did not take this industry view as problematic for MU stock. He raised his price target from $39 to $55.
It is understandable that there is considerable uncertainty regarding the chip sector, as many companies have posted strong gains and the industry has a long history of boom-bust cycles.
OK then, so what to do with MU stock? Well, for the most part, I still think the bull case is intact.
Why MU Stock Is Still a Good Investment
A big part of why I like MU stock is that the global memory business is now left to a handful of players. And they understand how important it is to be disciplined with capacity. Why engage in a price war that benefits no one?
Next, MU has undergone much change over the years, as the company has moved away from its dependence on the PC market. The result is that Micron is benefiting from various megatrends, such as mobile, cloud computing, AI (artificial intelligence), the Internet-of-Things (IoT), AR (augmented reality) and VR (virtual reality). All these represent large and fast-growing opportunities, which should help drive revenues at MU.
More and More Good Micron Technology News
In light of the strengths of MU, it should be no surprise that the company has the support of some of Wall Street’s savviest investors. Based on filings with the SEC, hedge fund manager David Tepper disclosed he boosted his holdings of MU stock from 1.25 million shares to 8.44 million shares.
Then there is Bill Joy, who is the co-founder of Sun Microsystems. His own fund has allocated 25% of its equity portfolio to the shares. In a recent letter to shareholders, he wrote: “With the DRAM industry untethered from its highly cyclical past, we believe chip prices and company earnings are going to be and [will] remain higher for longer than investors currently expect.”
But the success of MU is more than just riding secular trends. Over the years, the company has made long-term investments that have allowed it to be positioned nicely for the shifts in technology. This has involved a blend of acquisitions and R&D commitments. The result is that MU has benefited from a nice stream of innovations. Some examples include the GDDR5 and GDDR5X offerings for gaming, the NAND and eMCP solutions for mobile and the 20-nanometer DDR and LPDDR technologies that are targeted at automotive and IoT.
Bottom Line On MU Stock
With the soaring value of the MU stock price, it is understandable that investors are getting nervous. Let’s face it, much of the semiconductor sector looks bubbly.
But, then again, MU stock still is trading at reasonable levels. Consider that the forward price-to-earnings multiple is a rock-bottom 7. By comparison, QUALCOMM, Inc. (NASDAQ:QCOM) trades at an 18 multiple and Texas Instruments Incorporated (NASDAQ:TXN) sports a multiple of 22.
Now, of course, this does not mean that MU stock is immune from a drop. But for investors that have a long-term view of things, the shares still look like an attractive play.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.