Micron Technology (NASDAQ:MU) stock has failed to rise above $50 twice in the last three months. Its rallies have been followed by sharp reversals of its upward trends.
There is no doubt that concerns about the company’s near-term outlook have kept MU stock trading sideways. However, I believe that long-term investors can consider buying Micron stock.
Investors are obviously concerned about MU stock because of the U.S.-China trade war and America’s restrictions against Chinese company Huawei, a key MU customer. Micron has said that if the U.S. prevents it from selling additional products to Huawei, its sales will decelerate more rapidly.
Until there’s a decision on the Huawei issue, investors will be in wait-and-watch mode as far as MU stock is concerned. I think the issue will probably be resolved, since the US and China are taking initial steps towards resolving their conflict. However, it makes sense to remain cautiously optimistic about MU stock.
DRAM Contract Prices to Remain Weak
The good news is that PC DRAM prices stabilized in August and likely remained steady in September.
However, DRAM prices may not recover for the next 12 months.
According to TrendForce, the capital expenditure of major contract DRAM suppliers is expected to decline by 10% in 2020. Further,in 2020 DRAM bit output is expected to reach the lowest level in ten years.
Another headwind is the outlook of the global economy. Moody’s chief economist believes that there is a high risk of a global recession in the next 12-18 months. MU stock is sensitive to economic headwinds
Therefore, MU is faced with multiple negative catalysts, and that has kept MU stock relatively depressed.
AI Applications Will Boost Memory Demand
With the rise of AI and big data, memory makers like Micron should do well over the long-term.
A 2017 research article by Lloyd B. Minor, the dean of the Stanford School of Medicine. found that total healthcare data will swell from 153 Exabytes in 2013 to 2,314 Exabytes by 2020.
Further, according to research firm IDC, the amount of global data will reach 175 zettabyte by 2025. One zettabyte is equivalent to a trillion gigabytes.
Big data and artificial intelligence are closely connected. According to an article from MIT Sloan Management Review, the “convergence of big data with AI has emerged as the single most important development that is shaping the future of how firms drive business value from their data and analytics capabilities.”
Clearly, big data will provide tremendous opportunities, and Micron has solutions that will help the company grab a share of the pie. As an example, MU has solutions for storing medical records in solid state drives (SSDs). Similarly, the company’s advanced computing solutions are being used to accelerate AI applications.
Final Words on MU Stock
Even with the recent downturn of its sales, MU has robust fundamentals. As of its most recent reported quarter, MU had nearly $8 billion of cash. MU has also been utilizing its free cash flows to create incremental shareholder value by aggressively repurchasing MU stock.
While I don’t expect MU’s revenue to significantly climb over the next few quarters, MU does have promising long-term prospects. In particular, with the rise of AI and big data, demand for chips will remain strong.
It is also worth noting that positive news related to Huawei can send Micron stock surging. Therefore, it does make sense to gradually accumulate MU stock.
As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities.
