Micron Technology (NASDAQ:MU) stock has been on quite a ride lately. The volatility in the stock price seems to be showcasing a short-term battle between the bulls and the bears.
On the one hand, the bulls see MU as one of the top semiconductor companies with a rock-solid financial balance sheet. Their argument is that Micron should be able to weather any ups and downs in what is a very cyclical industry. On the other hand, the bears are anxiously looking to China and see no quick end to the trade war with the United States. Since 57% of Micron’s sales were from China in 2018, this is not a concern that should be easily dismissed.
Micron suspended chip shipments to Huawei in May of this year. Huawei accounted for 13% of its revenue in the first two quarters of its fiscal year which ends on Aug. 30. What started out as a trade war has morphed into a tech war. Investors are growing concerned that some Chinese companies may look to their Korean rivals such as Samsung (OTCMKTS:SSNLF) or SK Hynix (OTCMKTS:HXSCL) for their DRAM and NAND chips.
The semiconductor industry is one of the most volatile, and predictive, sectors in the market. Making long-term decisions on near-term performance is always a fool’s errand. Having said that, I like Micron stock in the long term, but I don’t like it as much in the rest of 2019.
What I Like About Micron Stock
Micron is going to be on the forefront of developing chips that will support 5G applications. This new technology will be rolling out for a new generation of mobile phones, including foldable phones. And this technology will place a growing demand for high-capacity memory and storage that is being driven by data-intensive mobile applications. The demand for Micron’s chips for the 5G market will also include machine-to-machine communication (IoT).
What I Don’t Like About MU Stock
5G is a good news, bad news story. A concern I have with Micron is that the smartphones and other 5G-enabled devices are not set to launch until next year. Apple (NASDAQ:AAPL), for one, has said iPhone demand is down as customers wait for the new 5G phones to roll out. This means we won’t know until next year whether there will be acceptance of these new devices.
This may seem like a silly concern, but these phones will be sold at premium prices just as the economy may be teetering into a recession. There’s no guarantee that someone with a two-year-old smartphone will reflexively upgrade to a new device, even if it does promise the benefit of 5G technology.
What Does the Future Hold for Micron Stock?
I enjoy riding roller coasters when I’m at an amusement park. However, I prefer my investments to have a little less volatility. In late June, Micron stock plunged after a poor earnings report that showed a supply glut due in large part to the ongoing trade war with China. Just a month later, the stock went roaring up on news that chip shipments were increasing more than expected.
The problem for me is that there’s a lot of emotion and noise tied up in MU stock at the moment. Investors are looking for any reason to buy or sell the stock. That environment can be conducive to traders, but it’s not as good for investors. The company itself seems to be agreeing with this stance as management has been cutting capital expenditures for 2019 and 2020 and putting nearly $3 billion of cash into share buybacks.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
