Micron Technology, Inc. has surged ~80% since my initial strong Buy rating, vastly outperforming the broader market. MU's rally was initially suppressed by macro headwinds, with a significant rerating occurring after Q2 earnings as market risks abated. Following Q3 earnings, MU's price action suggests a rerating has not materialized.
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Memory-chip stocks came under renewed pressure on Monday after a Reuters report said China's largest DRAM manufacturer, ChangXin Memory Technologies (CXMT), is considering building a second memory-chip fabrication plant in Beijing as it looks to expand production during a global semiconductor shortage fueled by artificial intelligence spending. Micron Technology and SK Hynix each fell about 6% in early trading, while Sandisk slipped roughly 2.5%, before slipping into the green later in the session.
The Roundhill Memory ETF (DRAM) has come under intense selling pressure recently as concerns about the memory and technology sectors escalated. It dropped to $50 on Friday, down over 33% from its year-high.
Micron stock was down on Monday following a report on the production plans of China's CXMT.
Micron Technology remains attractively valued post-dip, trading at 5x forward EPS, with robust AI-driven memory demand underpinning the bullish thesis. The company is in a far better position securing $100B+ in long-term SCA contracts and $22B in prepayments, with up to 50% of revenue under take-or-pay agreements at fixed prices. Despite strong near-term prospects, MU faces structural boom-bust risk, with gross margins historically swinging from 50% peaks versus 85% now to negative territory in downturns.
Micron stock has sold off along with the rest of the semiconductor industry. The memory chip shortage isn't expected to abate until 2028 at the earliest.
Micron Technology (NASDAQ: MU) delivered a painful month for late buyers, with the stock falling more than 20% between July 1 and July 31.
Memory chip stocks are rallying big after a week of poor performances.
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