Falling margins, deflated DRAM (dynamic random-access memory) prices, and other excuses gave Micron (NASDAQ:MU) stock bears and shorts ammo to mount an attack against one of the semiconductor industry’s power players. Then, of course, there’s the trade war that’s battered MU stock along with the rest of the chipmaker niche.
It’s impossible to know how much longer the trade war, which appears to be cooling off at the moment at least, will persist and how much more damage it will do to MU stock. With a company as innovative and forward-looking as Micron, though, investors should be willing to buy MU stock based on confidence that MU will fully recover.
Chips Are a Tough Industry, but MU Stock Will Do Just Fine
If skittish traders are concerned about the trade war and other challenges to Micron and other semiconductor manufacturers, I totally get it; chip making is not an easy business to make money in right now. The heady days of the mid-to-late 1990s, when stocks in this sector could easily double or triple or more, are long gone.
In a working paper authored by Neil C. Thompson of the Laboratory for Innovation Science at Harvard and the MIT Computer Science and Artificial Intelligence Lab and Svenja Spanuth of the MIT Sloan School of Management, the unique challenges of the chip market are noted:
“Of the 25 chip manufacturers that made cutting-edge chips at the beginning of the Millennium, all but three have ceased making the necessary investments to stay at the cutting edge… It currently costs a staggering $7 billion to build a manufacturing plant… and a roughly equivalent amount to design and operationalize the production of a new generation of chips – and both of these are still increasing.”
Yet, in spite of these and other ongoing challenges, patient owners of MU stock have done quite well; indeed Micron stock has gained around 56% so far this year.
If December’s fiscal first-quarter earnings are anything like the company’s Q4 results from September, then MU stock should be able to retake the $60 level, where it was back in March and May of 2018. In September MU exceeded analysts’ average estimates for both EPS and revenues.
Paving the Way for Tech Innovation
In the long run, however, I’m not overly concerned about an earnings report or two. Rather, I’m looking to MU’s excellent innovation as the key driver of its profitability going forward.
As an example of the company’s first-class innovation, Micron recently invested in an air-taxi company called Volocopter (you’ve got to admit, that’s a pretty awesome name). Most large cities are becoming more crowded, and parking spaces are almost impossible to find in many large metro areas. MU is already a major supplier of memory to the automotive market, and its Volocopter investment could position the chipmaker at the forefront of a growth industry.
Another expanding industry is the Internet of Things or IoT, MU just introduced its Authenta Key Management Service, which will use cloud-based safeguards to protect IoT devices against security threats. I see the IoT security field as an underappreciated market which will be in tomorrow’s headlines, Micron’s decision to enter this exciting market of the future is definitely a savvy move.
The Bottom Line on Micron Stock
There will always be problems facing the semiconductor sector. Those who invest in the sector must have the patience and the emotional fortitude to withstand trade wars, fierce competition, and other challenges.
MU is prepared to meet these challenges and move into 2020 with cutting-edge technology and a bold vision that will elevate not only the company, but the horizons of technology.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.