Micron Stock will go higher eventually, but do not buy now

Short-term pain and long-term gain for Micron Stock

<p>For Micron (NASDAQ: MU) stocks, the more things change, the more things are the same. In recent weeks, MU traded higher in the hope that the trade war would soon end. Seeing these hopes snapped sent the stock lower. As a result, traders are now struggling with mixed signals about what the Micron stock will do next.

Source: Shutterstock

The majority of the forces indicate a continued downward trend in MU stocks. Traders may have reasons for optimism. But until these reasons turn into results, I expect Micron to fall soon.

I have long said that MU storage works as a proxy for memory prices. This remains true. Even with the latest increase, MU has not come close to $ 64.66 per share high in June 2018.

Despite a down market for NAND and DRAM chips, the MU share has seen a lot of activity. In early July, I told readers to treat a new wave as a sales opportunity. Admittedly, I called early. Micron shares continued to rise another 20% higher on the optimism that the will to trade of the war would hold.

Micron Stock and the Trade War

The re-escalation of the trade war has taken the stock well below its high of $ 48.70 per share from mid-July. It also shows that a secondary cycle has emerged, one related to trade wars. The MU share rises when tensions fall. But when they heat up again, it sends the MU on a downward spiral. How far it falls probably depends on the trade war. This will also apply to even more non-memory chips such as Nvidia (NASDAQ: NVDA) and AMD (NASDAQ: AMD).

In addition, a new Chinese chip company has begun to appear. Lately, Micron just had to worry about Samsung and SK Hynix, both based in South Korea. Now, Changxin Memory Technologies memory technology will invest $ 8 billion in creating DRAM chips. This does not make China completely independent. Changxin is still dependent on US equipment and suppliers. Still, it will probably mean more price pressure in the future.

However, analysts expect price pressure for another reason. Profits for the next financial year still point to a sharp decline. Expected earnings for the current financial year amount to $ 6.22 per share. However, tax earnings for 2020 have decreased to just $ 2.48 per share. Wall Street had predicted $ 4.66 per share just 90 days ago.

In the company’s final quarterly report, CEO Sanjay Mehrotra also reminded investors that investment declined during fiscal year 2019. He announced that CapEx would continue to decline during fiscal year 2020 as the company continues to balance manufacturing investment with its free cash flow targets.

Reasons for optimism

Yes, chip prices continue to remain the dominant force driving the MU share. However, we could see reasons for optimism, even if prices fall and competition increases. As David Moadel mentioned, Goldman Sachs (NYSE: GS) has raised its price target from $ 40 per share to $ 56 per share.

In addition, the rise in the price of bitcoin and other cryptocurrencies contributed to the rise in memory prices in 2017 and 2018. Bitcoin traded below $ 4,000 as late as the end of March.

Today, it has grown back to the $ 12,000 range. This could potentially renew interest in the crypto mine. In addition, artificial intelligence, self-driving cars, 5G and the Internet of Things have not disappeared. Full use of these techniques will take time. As more consumers and companies adopt these products, the demand for memory chips will still only increase higher.

The conclusion of Micron Stock

Micron will eventually rise, but supply and geopolitical uncertainty will lower the price of MU shares in the short term. MU has fallen when the trade war with China intensified again. In this news, the hopeful signs that demand began to pick up faded.

Although chip cycles usually drive the Micron stock price, at the moment, feelings about when the trade war between the US and China has moved MU shares. When the trade war heats up and China starts producing memory chips at home, MU will probably fall soon.

Forcing forces can, however, reverse both memory prices and MU stocks. First, crypto prices have risen again to levels that can make crypto groups profitable again. In addition, the increase in several new technologies will lead to a permanent increase in demand for the industry.

When these forces begin to increase revenues for Micron, investors may then want to buy Micron shares. At the moment, investors should look instead to buy.

At the time of writing, Will Healy had no position in any of the above shares. You can follow Will on Twitter at @HealyWriting.