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Memory-chip maker Micron Technology (MU) has benefited from strong demand for its products. But with a recent pullback in Micron stock, some investors might be wondering: Is MU stock a buy right now?
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The memory-chip market hit the skids in the second half of 2018 when sales of smartphones, personal computers, servers and other gear slowed. But memory-chip sales rebounded in late 2020. Now, some industry analysts are concerned that the current uptrend in the chip cycle is peaking.
Boise, Idaho-based Micron makes two main types of memory chips: DRAM and Nand. DRAM chips act as the main memory in PCs, servers and other devices, working closely with central processing units. Nand flash provides longer-term data storage.
Dynamic random-access memory, or DRAM, accounted for 73% of Micron’s revenue in its fiscal second quarter. Nand flash memory accounted for 25% of its revenue during the period.
In DRAM chips, MU stock competes with South Korea’s Samsung Electronics and SK Hynix. In Nand flash chips, Micron competes with Samsung, SK Hynix, Kioxia and Western Digital (WDC).
MU Stock Fundamental Analysis
Late on March 29, Micron easily beat Wall Street’s targets for its fiscal second quarter and guided higher for the current period. But MU stock seesawed during the next trading session, ending the day down 3.5%.
Micron earned an adjusted $2.14 a share on sales of $7.79 billion in the quarter ended March 3. Analysts expected Micron earnings of $1.98 a share on sales of $7.53 billion, according to FactSet. On a year-over-year basis, Micron earnings soared 118% while sales climbed 25%.
It was the company’s fifth straight quarter of triple-digit percentage gains in earnings per share.
For the current quarter, Micron predicted adjusted earnings of $2.46 a share on sales of $8.7 billion. That would translate to year-over-year growth of 31% in earnings and 17% in sales. Wall Street had projected earnings of $2.24 a share on sales of $8.13 billion.
The next catalyst for Micron stock could be the company’s fiscal third-quarter earnings report on June 30.
Micron Investor Day News
On May 12, Micron held an investor day conference where it provided its long-term financial outlook. Executives also discussed the company’s strategy for expanding its share of the memory and storage markets through technology leadership. It sees automotive and data-center business driving its growth.
Plus, Micron announced a new fixed pricing model to stabilize price fluctuations that are common in the industry. It is looking to entice more customers to sign three-year forward-pricing agreements for DRAM chips.
In addition, Micron raised its quarterly dividend by 15% to 11.5 cents per share. The chipmaker also is accelerating its share repurchasing.
MU stock rose 1.1% after the investor day presentation on May 12. The next day, it advanced 6.2% after Wall Street analysts issued mostly positive reports on the meeting.
Micron Touts Next-Generation Memory Chips
Micron Technology says its innovations in memory chips will keep it several quarters ahead of competitors. The company’s memory and storage innovations are based on its industry-leading 176-layer Nand and 1-alpha DRAM technology.
“For the first time in Micron’s history, we established technology leadership concurrently in both DRAM and Nand,” Chief Executive Sanjay Mehrotra said on a Sept. 28 conference call with analysts.
Mehrotra added, “The secular demand for memory and storage, combined with Micron’s focused execution and our rock-solid balance sheet, positions us well to deliver strong financial performance and create significant shareholder value in fiscal 2022 and beyond.”
In January, Micron announced that it had begun volume shipments of 176-layer QLC Nand chips. QLC stands for “quad layer cell,” indicating 4 bits per cell. The rest of the memory chip industry is making TLC chips, or 3 bits per cell.
Next, Micron will be working on memory chips supporting Compute Express Link, or CXL, technology. CXL is an industry standard that will provide high-speed links between central processing units and system memory within data centers. Because CXL technology will need an ecosystem of new hardware and software, it probably won’t ramp up until 2024 or 2025.
On Aug. 2, Micron announced that it would start paying a quarterly cash dividend. The initial dividend of 10 cents a share was paid to qualifying shareholders on Oct. 18. MU stock rose 4.2% on the news.
Micron Stock Technical Analysis
On Dec. 21, Micron stock broke out of a cup-with-handle base at a buy point of 89.15, according to IBD MarketSmith charts. It climbed to an all-time high of 98.45 on Jan. 5 before retreating in the stock market correction.
MU stock flashed a definitive sell signal on Jan. 20 when it fell below its buy point and dived through its 50-day moving average line, a key support level.
Micron stock ended the regular session June 15 at 59.12.
Micron stock has a poor IBD Relative Strength Rating of 29 out of 99, according to IBD Stock Checkup. The Relative Strength rating shows how a stock’s price performance stacks up against all other stocks over the last 52 weeks. The best growth stocks typically have RS Ratings of at least 80.
MU stock has an IBD Composite Rating of 51 out of 99. The best growth stocks have a Composite Rating of 90 or better. IBD’s Composite Rating combines five separate proprietary ratings into one easy-to-use rating.
Is MU Stock A Buy Right Now?
Micron stock is not a buy right now. It needs to form a new base in the right market conditions before setting a potential buy point. Check out IBD’s Big Picture column for the current market direction.
In a negative sign, Micron stock is trading below its 50-day and 200-day moving average lines.
Micron ranks seventh out of 10 stocks in IBD’s Computer-Data Storage industry group. The group ranks No. 152 out of 197 industry groups that IBD tracks. IBD trading guidelines recommend focusing on top-rated stocks in leading industry groups.
To find the best stocks to buy or watch, check out IBD Stock Lists and other IBD content. Investors also can find top prospects on IBD’s Leaderboard, MarketSmith and SwingTrader platforms.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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