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Why This Time It’s Different for Micron Technology, Inc. Stock

Dana Blankenhorn

Analysts have recently turned the stock of Micron Technology, Inc. (NASDAQ:MU) into a battlefield. MU stock began falling sharply in mid-March, from above $60 per share to below $48 per share, before recovering to an Apr. 11 opening price of about $50.

Micron has, in the past, always had a boom-and-bust cycle. Memory chips are commodities, lagging the hardware cycle. Supply has, in the past, always caught up with and passed demand, leading to gluts and a collapse in the business.

The question before the market today is whether things might be different this time. UBS says no, sell the stock. Citi Research agrees, citing falling prices for NAND memory.

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Morgan Stanley (NYSE:MS) disagrees, saying Micron will help lead a new “data era.”  The folks at Instinet are also bullish. Mizuho has also reiterated its buy rating.

For the correct answer, look around you.

Disks Are Dead

Unless you still have a “desktop” PC sitting under your desk, you’re using chip-based memory to read this. Disks have always been cheaper, bit for bit, than chips, but as we start talking about 64 Gbit chips, that makes less difference.

The advantages of chip memory are obvious. Chips are smaller, faster and more reliable. You don’t use hard disks in a smartphone. Increasingly you don’t use them in a laptop, either.

Then there are the hundreds of artificial intelligence-based devices — speakers and smart doorbells and the like — that all use chip memory. Clouds running the applications they attach to also use more chip memory because it’s faster.

Morgan Stanley says semiconductor stocks like Micron represent the first wave of a new cycle. Networking infrastructure is going to be beefed up next, and that will be followed by an upgrade to clouds, paid for with new services created on the devices.

The normal chip cycle would, as UBS believes, normally be flashing a sell signal here. Companies are gearing up for the next generation, increasing their spending on design and chip-making gear, so the chips themselves should be entering a glut. 

But this is not a normal cycle.

The Long Haul

Micron has been managing itself as though this is a normal cycle, doubling its cash reserves from $4 billion to nearly $8 billion since last June, and cutting debt. As of the start of March, it could pay its long-term debt with cash.

But cash flow remains strong. Operating cash flow has risen from $2.4 billion to $4.4 billion in nine months, more than making up for its heavy investment flows, which have nearly tripled during that time to $2.4 billion. Total cash flow came in at $1.8 billion for the March quarter, four times more than it had been the previous June.

The picture being painted is of a company investing like it’s at the bottom of a cycle but selling like it’s at the top. That’s what has analysts confused. Business just shouldn’t be this good right now. But it is.

The Bottom Line on MU Stock

Whether you call this the “data era” or the “AI” era or just the second generation of cloud, technology companies are gearing up to gather, and use, enormous data flows to deliver new types of services instantly, from all the things around you.

Nvidia Corporation (NASDAQ:NVDA) is the poster child for these assumptions, and its stock is up 138% over the last year. But Micron’s performance is mirroring it, and MU stock is up 89% in the last year.

Our Chris Tyler is suggesting you get creative in going long Micron stock right now, wary of macroeconomic headwinds. Caution is a good thing if you’re nearing retirement and may need your money soon, in the form of cash.

But if you have a long-term view, five or 10 years, there is no need to get cute. Just buy MU stock.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance, The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned no shares in companies mentioned in this story.

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