Like most other semiconductor firms, Micron Technology (NASDAQ:MU) has incurred a rather interesting 14-month period. In the first half of 2018, MU stock got off to a blistering start, gaining over 26%. But the house came tumbling down shortly thereafter, leaving many shareholders running for cover.
This year, the overall sentiment appears much more promising. Clawing back some of last year’s losses, Micron stock has skyrocketed 36% since the January opener. The move also keeps pace with competitors like Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA). But despite the early enthusiasm, MU shares have found themselves in an unexpectedly awkward situation.
For starters, the MU stock price finds itself sandwiched between the 50-day moving average below, and the 200 DMA above. This setup not only indicates the ferocious volatility that shares incurred last year, but also broader hesitancy towards the company.
Second, Micron stock has gone virtually nowhere since January 2018’s opening volley. Since the tech firm obviously doesn’t pay out a dividend, investors have no reason to hold their position unnecessarily. Therefore, the present pensiveness is a real problem.
So what’s the next move? For a tech firm, nothing moves sentiment quite like a groundbreaking product. With Micron’s 3D XPoint technology, the embattled organization appears to have a lifeline.
You don’t have to be a techie to appreciate the implications behind 3D XPoint. However, the directional impact towards the MU stock price remains surprisingly questionable.
Why 3D XPoint Is a Gamechanger for MU Stock
Developed through a joint venture between Micron and Intel (NASDAQ:INTC), 3D XPoint represents the next phase of non-volatile, solid-state storage. According to Micron’s website, this new tech features “1,000 times lower latency and exponentially greater endurance than NAND.”
That’s great news for tech nerds, apparently. But let’s break down what this means for the investor. Primarily, 3D XPoint sits in a pricing sweet-spot between the two established solid-state storage technologies, DRAM and NAND.
Back in spring of 2017, DRAM cost a little more than $5 per gigabyte (GB). NAND sat on the cheapest end at 25 cents per GB. However, during development, experts forecasted 3D XPoint to split the gap at $2.40 per GB.
True, these are old statistics, and memory chips feature incredible volatility. Historically, this was one of the key reasons why the MU stock price was equally volatile. However, the data provides a comparative analysis which remains relevant today.
Another tailwind that drives Micron stock is the emerging industry for data centers. With both big and small businesses increasingly shifting towards the cloud, data centers have received massive revenue influxes. However, that demand also stresses technical components like NAND chips.
But as I briefly mentioned, 3D XPoint is significantly more robust than NAND. The former’s impressive tech credentials translates to million-plus write cycles. As ComputerWorld.com’s Lucas Mearian noted, 3D XPoint will essentially last forever.
Pricing Also Hurts Micron Stock
Given the new chip’s profound cost-savings against DRAM and performance superiority over NAND, buying MU stock appears a no-brainer. With just a simple explanation, you can convince even the most tech-ignorant investor to jump onboard.
Or maybe not. Ironically, the pricing tailwinds that benefit Micron stock also represent a significant headwind. A nagging issue is that 3D XPoint won’t disrupt NAND chips into irrelevancy or obsolescence. As Mearian stated, NAND still enjoys a long development road map. According to some industry experts, NAND can maintain relevancy into at least 2025.
That’s a problem because a new tech that partially markets a pricing advantage should make the replaced tech economically inefficient. However, 3D XPoint won’t displace NAND broadly. Instead, you’ll likely see the biggest impact in the data centers.
But more critically, 3D XPoint doesn’t have as many advantages over DRAM. In terms of latency (data-transfer delays), 3D XPoint is ten-times higher than DRAM. So the key advantage here is cost.
Here’s where the problem comes in: DRAM enjoyed a massive price increase in 2018, but that trend could crumble later this year. One doom-and-gloom forecast targets a drop from the current $7.07 per GB to a shocking $2.57 per GB.
If that happens, DRAM would only offer a marginal cost benefit to 3D XPoint. Further, unusual pricing dynamics could make DRAM cheaper than the upstart chip. At that hypothetical juncture, Micron may as well change the project name to 3D XPointless.
Should You Buy MU stock?
Despite the uncertainties surrounding 3D XPoint, I’m net bullish on Micron stock.
Of course, I’m concerned about DRAM’s negative (relative to the MU investor) pricing forecast. The negative prognostications could come true, or it might not.
Even if it does, let’s look at the longer term. Intel and Micro developed 3D XPoint with pricing advantages in mind. Therefore, barring unusual situations, computer chips don’t discount themselves in a vacuum. Instead, a secular fall in DRAM pricing would likely also see discounts for 3D XPoint, thereby maintaining the pricing advantage.
Plus, the MU stock price itself represents a pricing opportunity. I recommended buying shares last December, and that idea played out very nicely. But relative to its recent highs, MU is still a bargain.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.