Micron (NASDAQ:MU) stock has been in the line of fire in the last 12 to 15 months. From a high of $62.60 in May 2018, shares slumped by 53.7% to $29 toward the end of December. Amid volatility, MU stock has trended higher and currently trades at $45.
However, economic headwinds, the U.S.-China trade war and an inventory glut has kept the market skeptical on Micron’s outlook. I believe that the worst is over for the MU stock price. Moreover, current levels are attractive for those with an investment horizon of 24 to 36 months.
This coverage will discuss the factors that will serve as upside catalysts in the given time horizon.
New Growth Markets for Micron Stock – Autonomous Cars
Even as trade war and economic headwinds sustain, it is worth noting that the MU stock price has trended higher since June.
The first reason is that Micron expects a better second half with demand likely to pick up.
Another factor that has contributed to the bullishness from oversold levels is the company’s potential growth in upcoming markets.
As an example, the autonomous vehicle market is projected to be $54.23 billion in 2019. The market size is likely to increase to $555.67 billion in 2026. Micron has already partnered with Qualcomm (NASDAQ:QCOM) for automotive connectivity solutions that leverages 5G networks for autonomous driving.
Back in November 2018, the company partnered with BMW (OTCMKTS:BMWYY) to enhance automotive memory solutions for self-driven cars. According to Micron
By 2020, the typical vehicle is expected to contain more than 300 million lines of code and will contain more than 1 TB (terabytes) of storage and will require memory bandwidth of more than 1 TB per second to support the compute performance necessary for autonomous driving platforms.
This creates an immense opportunity for MU, which has one of the best memory and storage solutions.
New Growth Markets for Micron Stock – 5G Launch
As mobile operators prepare for the launch of 5G in 2020, there is immense opportunity for MU to deliver strong revenue growth.
To capitalize on the big 5G opportunity, Micron has already commenced production of a 1z nanometer DRAM process node.
In addition, the company has already announced the commencement of volume shipments of the industry’s highest-capacity monolithic 16-gigabyte low-power double data rate 4X (LPDDR4X) DRAM. According to Micron’s website, “UFS-based multichip package reduces power and increases capacity in the same footprint to enable slimmer handset designs.”
Clearly, MU is on the forefront of innovation and the timely launches of differentiating products. It is important to note that the 5G application is beyond mobile. There will be impact on industries like artificial intelligence, video games, smart devices and healthcare, among others.
Amidst the opportunity, China remains a key risk. The country is expected to be the largest 5G market by 2025. If the trade war is here to stay, the growth trajectory for Micron can be relatively muted. As a latest on the trade war, China has imposed tariffs on soybeans, cars and oil.
Final Words on the MU Stock Price
It is worth noting that DRAM spot prices have moved sharply higher in the recent past. While contract prices are more important than DRAM spot prices, it might be an early indication that the supply-demand mismatch is closing down.
In the coming quarters, it is entirely likely that contract prices will trend higher. This is in-sync with the management optimism on a better second half as compared to the first half.
Importantly, over the next two to three years, Micron has immense opportunities in the fields of industrial Internet of Things, automobile, mobile (5G) and the server market. As the tech firm gains traction on these fronts, Micron stock is likely to remain firm.
In the foreseeable future, the markets would be looking at the fourth-quarter results next month and the impact of the 5G launch in 2020.
Overall, the worst might be over for Micron stock. That is of course unless the trade war escalates further and sustains in the coming years.
As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities.
