For Micron Technology (NASDAQ:MU), they may remember 2020 as the year that brought the yin and yang. On one hand, it moved quickly higher on speculation that the 5G rollout would spike demand for memory chips. As a specialist in both NAND and DRAM chips, it wasn’t surprising that MU stock popped up. However, the coronavirus from China has exploded into a near pandemic, soiling the company’s outlook.
At the start of the weekend – and by start, I mean end of business Friday – international media reported a total of 85,207 cumulative cases, with 2,924 deaths. Especially worrying is the explosion of cases outside of China. Currently, South Korea is the second-worst hit nation, with 2,931 infected and 17 deaths. This easily surpasses the totals from the stricken Diamond Princess cruise liner and Japan.
Also causing anxiety is Italy’s coronavirus crisis. From having no cases to becoming one of the worst-hit regions, the country has 889 cases and 21 deaths. As a member of the European Union, government agencies are concerned about the spread of the virus to other nations. And if Europe went down, that would represent a huge headwind for MU stock.
Finally, Iran could be a pivotal cog in the epidemic. Cases have soared to 388, with 34 deaths – an unusually high mortality rate. Therefore, experts believe the infected rate is much higher, drawing fears that the crisis is spiraling out of control. Again, that’s not what you want to see for MU stock or any technology firm.
Now, some contrarians believe that this volatility is a good buying opportunity. I think they’re right. However, there’s likely more pain to come first.
Coronavirus Is Out of Control
BofA Securities analyst Simon Woo wasted no time. On Feb. 25, Woo downgraded MU stock to “underperform” from “buy.” In his view, memory chip sales will drop lower due to the virus outbreak. As such, he set a $50 price target.
For what it’s worth, I agree with his core arguments, except for the price target. Although shares are on their way down to that level, I don’t think they’re going to stop there.
Unlike those urging calm, I’m from the camp that believes people are not treating this virus seriously enough. Recently, I discussed the volatility in credit card company Mastercard (NYSE:MA), arguing that the pain isn’t over. In that article, I pointed to the fact that coronavirus cases outside of China has represented a growing share of total cases.
On Feb. 27, the share of non-China cases was just under 5.2%. On Feb. 28, this figure jumped to 6.4%. By the time you read this, the allocation could be higher still.
Essentially, the coronavirus is spreading with unbelievable furor. That right there hurts the narrative for MU stock from both demand and supply chain considerations. Not to cause panic, but I frankly believe that the international community is being unreasonably soft in their anti-viral tactics.
As the New York Times reported, the Chinese government “closed off entire cities, shut down transportation networks and schools, and isolated many people who might have been exposed.”
After all that, they still have over 79,000 cases and 2,835 dead. Given these horrific and still escalating statistics, how’s the sentiment going to be for MU stock?
Shriveled Focus on 5G and Other Tech Hurts MU Stock
If it weren’t for the coronavirus, I’d look into picking up shares of Micron. As I mentioned above, the transition to 5G would spark huge demand for smartphone-specific memory chips. It couldn’t have come at a better time too as smartphones were becoming saturated and dare I say boring.
Unfortunately, the coronavirus couldn’t have come at a worse time. It came right as the Trump administration was negotiating a trade deal with China. Further, the virus has regional implications as Tokyo may have to cancel the 2020 Olympic Games. If Japan can’t recoup some of its investments, it could spell trouble for the country, the region, and the world.
So, this is all kinds of ugly. And I highly doubt that Wall Street has priced in the turmoil that’s coming. Therefore, if you’re interested in the Micron discount, wait. A bigger one will likely be around the corner.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.