Micron Technology, Inc. (NASDAQ:MU) isn’t the biggest memory chip maker our there, but it is certainly one of the top performers. And that’s because MU stock isn’t as diversified as say, Intel Corporation (NASDAQ:INTC), which makes all sorts of chips.
Micron just makes DRAM, NAND and NOR memory chips.
Generally speaking, this industry is cyclical. A new generation of devices come out and demand for memory chips rises. Then, after a couple years demand falls as those devices are used and a new generation of devices is developed.
Then the next generation is ready and demand for new chips rises once again.
Right now, we’re in the heady demand stage after a downcycle in 2015 and 2016. In the past 12 months, MU stock has gained more than 90% and it still has a price-to-earnings ratio below 7.
Its FYQ1 numbers, released in late December, show that even after a flat December, there’s still plenty of growth ahead for Micron stock.
Revenue was up 71% for the quarter, its fifth-straight-quarter of big double-digit revenue growth. And MU is raising its expectation for 2018 already.
The danger in focused tech firms that exist in cyclical markets is that you always have to keep an eye on the exit door since analysts only need a whiff of bad news before they start selling and moving their money to another hot cyclical sector. That’s why most chip firms diversify. They may lose a lot of boom, but they also temper the size of the bust as well.
However, there are a couple changes at this point in the Digital Age that may make MU stock’s trajectory a bit different moving forward.
The Massive Potential Behind MU Stock
First, the massive growth of cloud computing may help add a longer tail to memory chip demand.
With companies of all sizes seizing the opportunity to move their operations into the cloud, cloud providers need more storage to keep all the information and all the data that is generated by all that information.
Also remember that there’s a growing amount of data-heavy video and audio that are living in the cloud as well. This demand is not attached to the consumer and corporate demand trends that usually drive memory chip demand. It’s a much longer trend that will help extend MU stock’s growth.
Also, the Internet of Things and artificial intelligence, particularly driverless and ‘smart’ devices are more game changers that will help keep memory chips (and Micron stock) in high demand. The smarter our devices become, the greater the need to stick some memory inside them that has the ability to respond quickly to our requests or to the situation at hand.
Where there used to be a predictable supply and demand cycle, that is beginning to change and with it, the cycles of companies like Micron and MU stock.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.