Micron Technology, Inc. (NASDAQ:MU) is up 73% in the past year. But it’s only up slightly more than 18% year to date.
That simple description illustrates the fate of chipmakers in the past year.
The chip industry has been cyclical for a long time. But with this second generation of mobile tech — smartphones, cloud computing, Internet of Everything, etc. — maturing, the cycle has shifted.
And in MU stock’s case, it has all been to the good.
Micron is major manufacturer of flash memory chips. These are the new “fuel” for mobile devices.
Essentially, the big data and software that used to be stored on devices, is now stored in the cloud. That means instead of having to store huge amounts of data on your smartphone, most of it comes off the cloud and phone can hang to a fraction of the information that used to be housed on it.
That also makes way for much more enriched environments on devices. Gaming becomes richer, teleconferencing and video chat are better. Almost anything that it took a desktop to do a decade ago can now be accomplished with a device that fits in your pants pocket.
Add to this, all the possibilities of smart cars and smart houses, driverless vehicles, virtual reality (VR) and augmented reality (AR).
This is the story that is responsible for MU stock’s big move in the past year. The argument is, that cyclical nature of the business — a new generation of technology requires a new generation of chips. All the tech manufacturers order the next generation chips for their devices and the chipmakers spend a few years filling those orders.
Then, a lag occurs while the market digests that wave of tech, the chip companies drift or drop and then the next wave hits.
The current bullish argument is, because this next wave of mobile tech is so pervasive, it has a longer tail that previous cycles. Now that everything is getting fitted with chips — cars, homes, refrigerators, toasters — the good times have been extended.
That would mean the usual boom cycle for chips, which we have been in for a while now, will last significantly longer than usual.
But the bear argument, which started to take hold early last month, is this whole bullish “this time it’s different” argument is more hope than reality. Big Swiss bank UBS Group AG (NYSE:UBS) initiated coverage of 14 chip stocks in early April with a dour outlook and a “sell” rating on MU stock.
But here’s the thing: The only other “sell” was on Texas Instruments Inc (NYSE:TXN). It reported last week and beat analysts expectations handily.
This sector will be volatile as everyone on every side continues to read and interpret the tea leaves in their own way. But MU is a leading memory chip maker and there is significantly more demand for memory chips. You do the math.
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.
