by fcf-whore
Now, you’re probably thinking to yourself, “not this sh*t again, I nearly blew my entire food budget on this last summer.” Well, I’m here to tell you that this time is different.
We all know that semiconductors, specifically memory producers, are cyclical. When stocks go up, volatility is your friend. When stocks go down, volatility leads to bagholding and $ROPE purchases. I don’t need to tell you about how MU is undervalued: everyone and their mother knows that already.
So what would be the catalyst for the stock increasing in price? Over the recent few months, we’ve seen some very positive developments, including:
(1) Graphics customers coming to normalized inventories, and cloud hyperscale customers close to normalized levels.
(2) Due to the political uncertainty between Japan and South Korea, companies want to maintain higher DRAM safety stocks to ensure production capabilities, hence volumes are higher than expected over the coming months, and while the spot market doesn’t encompass high volumes, it leads contract pricing. It’s safe to assume that chip ASP’s are on the way up due to this skirmish, and while mild price declines (sub-10%) may come over the course of the next 3 months, odds are that the pricing bottom is behind us. (Go to www.dramexchange.com and check the DXI chart there to see what I’m talking about.)
(3) Micron will benefit disproportionately from the rise in memory prices as they have the highest inventory levels of any memory producer. In fact, in a commodity business such as DRAM, revenues bottom when inventories peak, and that makes sense since producers stockpile inventories at a time of low prices to (a) help stabilize the market and (b) sell at a time of higher prices assuming that cash flow is not a concern, which it isn’t for these companies. What has me excited is that their CFO said several days ago that this quarter’s inventories are expected to be lower than last quarter’s, “at least” by an estimated 11 days. Now, I don’t know about you, but that points to significantly better supply-demand balance, which means that supply is coming down, demand is going up to match supply, or both.
With strengthening fundamentals (improved demand and not to mention, supply cuts across the board) and the technicals to support it, it’s certainly possible that DRAM could see greater demand than supply as soon as second half of next year, and we all saw what happened to the stock price when demand outpaced supply on the massive upcycle that was 2016-18. We are setting up for a repeat of that, right now.
In terms of how you can make money off this, the stock is close to a local low at $43 and has room to run. It’s held the $41-42 support in light of the Hong Kong/China/yield curve/Trump tweets in the last few weeks, so that looks like the bottom. It had run up to $48 prior to the Trump news, and with a potential preannouncement in a few weeks, I think the local high of this run could be anywhere from $48 to the low-50s. Trade accordingly, my friends. It’s bull time.
tldr; buy MU (90s)
Disclaimer: Consult your financial professional before making any investment decision.