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Micron’s Current Stock Rally: Is It Different This Time?

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Micron’s Current Stock Rally: Is It Different This Time? PART 1 OF 13

What Is Pushing Micron Stock to an All-Time High?

Micron stock trades at an all-time high

Micron Technology (MU) has replaced NVIDIA (NVDA) as the top-performing semiconductor stock (SMH) of 2017. Since its fiscal 4Q171 earnings release on September 27, 2017, Micron stock has increased 16% in just one week and is currently trading above $39.00—its all-time high.

This upward rally comes as analysts and investors became optimistic that the memory market uptrend could continue throughout 2017 and extend into 2018. Micron’s fiscal 2017 earnings were the highest in 15 years, with a sixfold increase in EPS (earnings per share).

What Is Pushing Micron Stock to an All-Time High?

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These strong earnings could continue in fiscal 2018, driven by strong demand, tight supply, and improved ASP (average selling price) of DRAM (dynamic random access memory) and NAND (negative AND) chips.

Micron bulls

Analysts are bullish on Micron (MU) and stated that the stock is inexpensive, even at its all-time high from a fundamental valuation perspective. The stock still has the potential to see double-digit growth, as it benefits from a strong DRAM market environment.

The DRAM market has consolidated with only three suppliers—Samsung (SSNLF), SK Hynix, and Micron—commanding more than 90% of the market share. These three suppliers generate strong margins due to high ASPs. They are maintaining a supply discipline so they can demand high prices.

Micron’s outlook for the next few quarters is optimistic, as the company benefits from secular trends like data centers, autonomous driving, and IoT (Internet of Things), which would keep memory demand high for a longer term.

This outlook is supported by Micron’s guidance that DRAM and NAND demand would grow faster than supply in calendar 2018 as well. Another factor supporting the above outlook is the double-digit growth in the overall semiconductor market in 2017.

What is Micron doing to stay profitable?

While the market environment remains favorable, Micron is also making efforts at an operational level to make the best of this uptrend. The company is using its high cash flows to reduce its debt and expects to become net cash positive by the end of fiscal 2018. A company becomes net cash positive when its cash reserves are higher than its long-term debt.

Over the last two years, Micron has significantly reduced the technology gap with its peers with the help of its joint venture with Intel (INTC) and past mergers and acquisitions.

In this series, we’ll look at Micron’s growth drivers and their impact on its stock price.

  1. fiscal 4Q17 ended August 31, 2017
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