Micron has outperformed most semiconductor peers. This year, Marvell Technology (MRVL), NVIDIA (NVDA), Qualcomm (QCOM), Intel (INTC), and Broadcom (AVGO) have risen around 55.1%, 31.3%, 38.6%, 10.6%, and 13.3%, respectively. Advanced Micro Devices (AMD) has outpaced Micron this year, rising 65.9%. The VanEck Vectors Semiconductor ETF (SMH) has risen about 37.5% year-to-date.
Why is Cramer betting on Micron stock? Let’s see what the company could report when it releases its Q4 results on September 26.
Micron stock strengthening on improving chip demand
Since last year, Micron has seen sluggish demand for its DRAM (dynamic random-access memory) and NAND (negative AND) memory chips. Lower demand in the smartphone and server markets and trade tensions dragged down chip demand. The demand slowdown, combined with lower memory prices, reduced Micron’s profits.
However, the chip market is now improving. Micron stock is gaining momentum amid expectations of chip demand growing. During fiscal 2019’s third quarter (ended in May), Micron’s chip prices improved marginally as the company got rid of its excess inventory. Given that the chip market is improving, Micron now expects DRAM demand to return to marginal growth in this year’s second half, and for the NAND market to stabilize.
What to expect from Micron in Q4
Based on expectations of higher chip shipments in the fourth quarter, we think Micron could beat analysts’ average expectations. Goldman Sachs analyst Mark Delaney shares that view.
In the fourth quarter, Micron expects its earnings and revenue to fall by 57% and 6% sequentially. The company has guided for a gross margin of 27.5%–30.5%, thanks to memory price declines bottoming out. Meanwhile, analysts expect Micron’s sales to fall 45.9% YoY (year-over-year) and by 4.7% sequentially in the quarter. They foresee its earnings falling 86.3% YoY and 54.3% sequentially.
Analysts bullish on Micron stock
Several analysts have upgraded their ratings and price targets for Micron stock, as they anticipate chip demand recovering by next year. Last Friday, JPMorgan Chase raised its price target on Micron stock because it expects NAND pricing to improve in the near term. Goldman Sachs also raised Micron’s price target last week. Analysts at Longbow, KeyBanc, Susquehanna Financial, and Mizuho Securities are all optimistic on Micron stock.
Trade talks could also benefit Micron
US-China trade developments could boost Micron stock price higher. On Friday, Donald Trump reportedly exempted 437 Chinese products from the tariffs he imposed last year. He has also postponed his 30% tariffs on Chinese goods to October 15. On September 11, China’s Ministry of Finance announced 16 US goods’ exemption from tariffs. Mid-level trade officials have also resumed trade talks, raising hopes for a favorable trade deal in October. A US-China truce is critical for Micron, whose biggest customer is China.
Analysts’ recommendations and technical indicators
Of the 34 analysts covering Micron stock, 21 suggest “buy,” ten suggest “hold,” and three suggest “sell.” Micron’s 14-day relative strength index score is 61.2, which suggests investors are generally neutral but prefer to “buy” the stock. On September 23, Micron stock closed near its midrange Bollinger Band of $47.94, implying the stock is neither overbought nor oversold. Based on its technical indicators and Cramer’s comments, Micron stock seems to be gaining favor.