Micron (NASDAQ:MU) will not announce earnings until June. However, with peers SK Hynix and Samsung (OTCMKTS:SSNLF) releasing quarterly reports soon, the focus will return to the chip sector. Moreover, Micron has just released its next generation of chips for cloud and enterprise systems. Such factors could result in the turnaround needed to boost MU stock. However, investors need to pay attention to the actual pricing commanded by memory chips before turning bullish.
Despite the fact that MU will not report earnings for two more months, the company remains in the news. The company unveiled the third generation of high-performance NVMe SSDs. These chips will go into both cloud and enterprise applications. `
The company claims the new Micron 9300 SSDs will offer the industry’s lowest latency. They bring a read and write capability at 3.5 GB per second. They will also achieve this speed using 28% less power than chips of the previous generation.
Micron chips power data centers, artificial intelligence (AI), virtual reality, and autonomous cars among other things. Such technologies require large amounts of memory. More important, their use in self-driving vehicles makes minimizing latency a matter of life and death.
Chip Pricing and Micron Stock
This need should ensure robust demand for its new chips. Nonetheless, the critical question for MU investors will hinge on chip pricing. Despite the increased importance of memory chips, MU stock has not escaped its dependence on memory prices to move the equity higher. Since the beginning, Micron stock has risen during times of high memory prices and fallen when memory prices crashed.
MU stock investors have become accustomed to this. Despite a price-to-earnings (PE) ratio of only 3.9, MU struggled over the last year. To be sure, memory prices have fallen, taking the forward PE to about 9.1. While the adage of “it’s different this time” did not pan out, one thing has indeed changed.
In previous price cycles, MU stock would fall into losses. However, memory demand has grown exponentially since the PC era. For this reason, Micron remained profitable when memory prices fell. Also, MU did not fall into single digits as it did in previous memory price downturns. In the recent memory price crash, Micron stock bottomed at $28.39 per share.
The rock-bottom PE ratio may have helped take MU stock back to the $43 per share range. Nonetheless, the company reported a 28% drop in DRAM memory sales and just a 2% increase in sales for NAND memory. Consequently, profit estimates have continued falling.
However, if SK Hynix and Samsung show price improvements, it could mean profit estimates stop falling. As my colleague Bret Kenwell reported, firms such as Taiwan Semiconductor (NYSE:TSM) and AMD (NASDAQ:AMD) expect higher second-half sales. Moreover, if this new generation of memory chips lead to higher pricing, it could mean the Micron stock price resumes its climb.
Final thoughts on Micron Stock
The release of next-generation chips could help to boost MU stock, but investors still need to focus on memory pricing. Thanks to the advent of data centers, VR, self-driving cars, and other applications, memory chips have become more essential than ever.
While this does not change the cyclical nature of MU, it will probably lead to improved revenues. Moreover, with its South Korea-based peers about to release earnings, traders can see revenue results and company forecasts on memory prices.
Nonetheless, the success of Micron still depends on memory pricing. Other chip companies believe pricing will improve soon. If that comes to pass, I think higher chip prices combined with Micron’s low PE ratio could boost MU stock. Still, until chip prices show improvement, I would expect little upside in Micron.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
