Will Micron Technology, Inc. (MU) Stock Continue To Ride Bullish Expectations?

Is this the best time to enter MU stock? Here’s all to know about Micron Technology, Inc. to play MU stock better.

Micron Technology, Inc. (NASDAQ: MU) stock is now up by a whopping 132% since its lows last May. MU stock is now trading above $22, as it clearly has garnered momentum from its first fiscal quarter of 2017. Investors have really been in the face of the management for several quarters now with respect to getting this company back into profit as soon as possible. Well, Micron managed to do that in Q1 posting a net income of $180 million for the quarter. The positive earnings came mainly on the back of better pricing in DRAM as well as margin improvement due to the ongoing shift from planar NAND processors to 3D NAND flash.

Investors are definitely monitoring with enthusiasm the perceived favorable supply/demand situation for memory chips in 2017 which on the surface looks bullish for Micron. In fact, with Micron continuing to be heavily exposed to DRAM, prices in this market are expected to rise by up to 25%. Credit Suisse is expecting demand to spike by 29% whereas it expects supply to inch up only by 18%. Micron (although pivoting) still earns most of its revenue from the DRAM market. These supply/demand numbers are bullish for Micron for fiscal 2017 but there is a risk that the likes of SK Hynix & Samsung Electronics (OTC:SSNLF) could add to the demand which would suppress prices in the market. In my opinion, the easy money has been made in Micron. Yes, MU Stock could easily rally another 20 to 30% from its current levels but I fail to see how the stock will reproduce its spectacular performance from the past 8 months or so.

If China Gets Serious About Home Grown Chip Manufacturing – It Would Adversely Affect Micron

If I was heavily long on this stock, one area that would definitely be worrying me at present would be the position of the Chinese. China wants to change the paradigm with relation to importing the vast majority of semiconductors for its market. In fact, it has announced a $160 billion fund with the aim to make China self-sufficient in the semiconductor market. Basically, China wants to get its hands on as much intellectual property as possible in order to manufacture semiconductors at scale in their own country. In fact, the US government blocked a proposed takeover of Micron in 2015 but the Chinese don’t look like they are ready to back down. The risk to Micron shareholders is this. If China gets fed up of US government interventions (with relation to investing or acquiring US companies in this space), China could easily shut down its market to US suppliers. In fact, it already has a stipulation that foreign manufacturers must manufacture in China in order to gain access to its market. China, by far, is the biggest semiconductor market in the world but now it wants far more of the pie. If they do succeed in manufacturing their own chips, it would result in downward pressure on pricing over time. This would not be bullish for Micron going forward.

Still Up In The Air As To Whether Micron’s 3D XPoint Technology Will Be A Major Hit Or Not?

Apart from favorable pricing conditions in 2017, there seems to be major optimism regarding Micron’s 3D Xpoint technology. This stems from the fact that Micron is expected to launch its technology before Intel’s which many investors believe is pivotal. However, I would caution investors here that despite the probable launch of an SSD (under the QuantX brand) this year, Micron is not expected to see any meaningful revenues here until 2020. In saying this, investors seem excited as Apple (NSDQ:AAPL) and International Business Machines (NYSE:IBM) are already using this technology and, more importantly, that the technology is being targeted for the high-growth data center environment. 3D Xpoint is up to a thousand times faster than traditional NAND but we still do not know if the technology will be successful in the market. To be debating on whether to invest in Micron because of this technology is too risky in my opinion. Why? Because the 3 to 4 year lead time is just too long and will allow Micron’s competitors to keep working on their own technologies. Case and point – A lot of things still need to go right with relation to Micron’s 3D Xpoint for the company to hit a home-run here in years to come

Technically The Stock Looks Overbought Here

Micron is a highly cyclical stock, one can definitely use technical analysis to help in making an investment decision. If we look at a weekly chart, we can see that Micron share price got absolutely hammered in the great recession back in 2008 & 2009. However, investors believe that due to favorable tailwinds, the share price could rise vertically like it did between the years of 2013 and 2015. Nevertheless, the weekly stochastics and RSI indicator look pretty overbought here. Can they remain overbought for a significant period of time? Yes, but the risk has to be to the downside here as equity markets in the US are far higher now than they were back in 2014. If one still likes Micron, the safest bet would be to wait until the technical indicators become oversold once again.

Summary

Micron’s sentiment is sky high at present after its impressive first quarter earnings report. The company “appears” to have plenty of tailwinds at its disposal but we all know that this sector can turn on a dime. I would be looking for a far better entry here as I believe that the easy money has already been made in Micron last year.

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