At the beginning of this year, I advised buying semiconductor firm Micron (NASDAQ:MU) because at $35 per share, it was “a deal that’s too good to pass up.” If you did buy MU stock at that time, then although it has been a bit of a rollercoaster, you’ve picked up gains of around 20% over the past seven months.
That’s not too shabby when you consider that the S&P 500 has risen roughly 11% over the same period. So now begs the question of whether it’s time to pocket your profits and move on, or continue betting on MU stock for the long-run.
What the Bulls Say About Micron Stock
There’s no denying that MU is one of the strongest semiconductor firms in the industry. Not only does the firm have some of the best products on the market and in its pipeline, but Micron also boasts an iron-clad balance sheet. That has been a key reason behind my Micron stock recommendations even when analysts cautioned that a memory sector downturn is on the horizon. Micron looks well-positioned to deal with it.
However the doomsday that many were predicting for the memory chip space has come and gone, which has given bulls more reason to jump on board with MU stock. MU was able to deliver better than expected results in the fiscal third quarter despite operating in what management said was a difficult industry environment. Now, both Micron and some analysts say the worst is over for chipmakers, which should be a boon for MU.
RBC Capital Markets analyst Mitch Steves said the improving memory environment was a big reason behind his decision to raise his earnings-per-share estimates for MU stock. Steves stuck with his Outperform rating for the stock and reiterated a $55 price target.
There’s also the 5G catalyst on the horizon that MU bulls are pointing to.
Micron’s chips are due to power the new generation of 5G technology that lies on the horizon. While mobile phones will drive the need for 5G chips, other devices on the Internet of Things will also make use of 5G capable chips.
What the Bears Say About Micron Stock
Of course, Micron certainly isn’t a risk-free investment. The glaring red flag for me is that Micron has already seen its share price rise 30% since bottoming in at the end of last year. That kind of increase should warrant some caution, especially if you’re looking to take up a new position.
As my colleague Chris Markoch pointed out, there’s no guarantee that 5G will catch on quickly. He reasoned that with all of the economic uncertainty out there, many may be hesitant to rush out and upgrade their phones — especially as the 5G devices are likely to carry a hefty premium.
There’s also the U.S.-China trade war to consider. More than half of MU’s revenue comes from China and the firm has already been hurt by the trade restrictions placed on Huawei. In the first half of 2019, Huawei was responsible for about 13% of Micron’s revenue, so it’s worth keeping in mind that if things get worse over the next few months Micron stock may pay the price.
When it comes to the bulls vs the bears on Micron stock, both sides present valid arguments. But I can’t help but side with the bulls here. MU stock has quite a few big catalysts on the horizon — namely, the firm’s position in the 5G market. Although Markoch makes a good point about people hesitating to upgrade, I believe it’s only a matter of time before people give in and upgrade. Phones have become such an integral part of everyday life that I find it hard to believe that people would be willing to pass up an opportunity to make them faster and more powerful.
Plus, I like my odds with a recovery in the chip market overall. The majority of analysts agree that although 2020 is when we’ll likely see a real uptick in the chip space, the worst is over for chipmakers like Micron.
The Bottom Line on MU Stock
If you already own MU stock, I’d strap in for a bumpy ride but I certainly wouldn’t get off the rollercoaster. The firm’s long-term future looks bright and if you can hold on through some trade-war turbulence, then MU stock is worth keeping.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.