Micron Stock Should Be Lifted by New Technologies

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Micron (NASDAQ:MU) stock has sent mixed signals lately. The anticipation of a recovery in memory prices has helped MU stock move higher. However, the company’s inventories remain elevated, and it has cut its capital spending. Moreover, due to issues related to China,  the company’s near-term revenue and earning outlook is uncertain.

Looks like This Momentum in Micron Stock Is for Real
Source: Charles Knowles / Shutterstock.com

Still, Micron’s outlook may soon shift. Although MU stock is currently heavily influenced by China, new technology should increase demand for memory, boosting Micron stock.

It’s (Somewhat) Different This Time

Over the years, MU stock has been very volatile,  as widely fluctuating memory  demand cycles have caused large memory price shifts.

Many had long hoped that the memory price cycle would disappear. However, after a chip glut that began in 2018 caused MU stock to lose more than half of its value, investors saw that the memory price cycle was intact and that Micron was still a proxy for memory prices.

But things have changed. Previous drops in memory prices sent Micron into the red and caused MU stock to fall below $10 per share. This time, Micron stock bottomed at $28.39 per share, as MU managed to remain profitable throughout the cycle. So MU stock fell sharply, but not as much as in past years.

Put simply, demand for memory has permanently increased. In previous cycles, PCs, and later, smartphones and tablets, drove most of the demand for memory. Thanks to artificial intelligence (AI), virtual reality (VR), the Internet of Things (IoT), and other new technologies, more memory than ever is needed. The rise of 5G should further boost memory demand.

Micron Stock Will Head Higher, But Not Yet

Analysts, on average, expect Micron’s  earnings per share for its current fiscal year, FY20, to come in at just $2.54, down from its EPS of $12-plus per share in fiscal 2018. However, for FY21, analysts’ average EPS estimate is $5.33. Also boding well for MU stock, most analysts see a further earnings increase for MU in FY22.

Investors, however, should not assume that the memory price cycle will disappear. Cycles have become standard for the memory sector. Moreover, as InvestorPlace columnist Tom Taulli pointed out, the uncertainties facing China, especially the issues facing Chinese company Huawei, a large Micron customer, continue to plague Micron stock. Only the rise of new technologies can supersede MU’s China issues.

Final Thoughts on MU Stock

Regardless of what happens with China, MU stock won’t move higher unless new technologies advance further. Even though there have been some negative developments recently for MU stock, including rising NAND chip inventories and declining capital spending by the company,  signs of a recovery by MU have begun emerging.

In the future, increased use of AI, VR, and other applications will permanently raise demand for memory. As a result, memory prices will probably climb, likely boosting MU stock over time. However, America’s troubled relationship with China creates uncertainty about how quickly demand for memory will increase.

The Near-Term and Longer-Term Outlook of MU Stock

Over the summer, Micron stock repeatedly rebounded after it hit the low-$40s. Barring an economic downturn or a meltdown in U.S.-China relations, I think that MU will not fall below the low $40s.

Smartphone makers have begun to roll out 5G-compatible devices. As consumers and businesses demand more 5G-capable devices, demand for memory should rise, taking MU stock back to the mid-$60s per share range and beyond.

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.

 


Article printed from InvestorPlace Media, https://investorplace.com/2019/10/focus-technology-china-mu-stock/.

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