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Micron Technology (MU) Stock’s Fundamentals Will Break Technical Deadlock

I’ve generally been positive about memory chipmaker Micron Technology, Inc (NASDAQ:MU) due to its comeback potential. The underlying semiconductor market emerged from its doldrums, boosting competitors like Nvidia Corporation (NASDAQ:NVDA) and Advanced Micro Devices, Inc (NASDAQ:AMD). MU stock also benefits from a wide variety of businesses, ranging from mobile devices to data centers for cloud computing.

Back in 2016, and even early this year, it was a great time to invest in the digital sector.

Micron Technologies, MU stock
Micron Technologies, MU stock

For Micron stock in particular, the optimism burst couldn’t have come sooner. Throughout all of 2015, MU appeared as though all hope was lost. Shares eventually lost more than 59% of market value, which was a dubiously stunning feat.

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That was then, and this is now. Reminiscing about past accomplishments is fine for bragging rights, but it’s not really helpful for forward progress. While we can appreciate the guts it took to invest in MU stock in late 2015 to early 2016, how does this impact the case ahead of us?

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I completely sympathize and understand investors who are hesitant to jump aboard now. While Micron stock is up nearly 8% in this month alone, shares entered a strong resistance area. It’s around the current mid-$30 range where MU failed to drive higher in the second half of 2014. Consequently, the following year was a devastating one, as I previously mentioned.

I’m not saying that history is doomed to repeat itself for MU stock. Nor am I justifying the technical-analysis discipline, but many traders do believe in repeated patterns and other technical signals. Irrespective of your own opinions, you do have to respect the collective psychology, even if you think it’s nuts.

Core Market heating up for MU

While potential investors should be mindful about the technical resistance issue, I think the fundamentals carry greater weight. A broad spectrum of established and emerging businesses back MU and the rise of Micron stock.

First and foremost, a healthy dynamic random access memory (DRAM) market is essential, and that’s exactly what Micron is getting. InvestorPlace contributor Luke Lango notes that the sector is “on fire.” He writes:

“The global mobile DRAM market had a big bounce back in the second quarter of 2017, according to DRAMeXchange. A memory components inventory build problem in the first quarter improved throughout the second quarter, leading to a near-15% sequential increase in revenue. Among top DRAM makers, Micron was singled out as one of the biggest growers in the quarter.”

Lango also cites a Barron’s report that states essentially only three DRAM competitors exist. Therefore, even if industry headwinds arrive, MU stock is naturally sheltered from some of the impact. And, as our own James Brumley argues, semiconductor firms will likely learn from prior overproduction mistakes that caused the sector fallout from which everyone had to recover.

Secondly, Micron is steadily gaining market share in the DRAM sector. In the first quarter of 2017, MU chips took 21% of global DRAM share. In the prior-year quarter, their allocation was 18.5%, or a 13.5% improvement.

The trajectory is certainly pointed in the right direction. In the second half of 2013, Micron’s global market share averaged 27.5%, whereas rival Samsung Electronics (OTCMKTS:SSNLF) averaged 38.1%. Nowadays, Samsung routinely takes over 40%. MU was at real risk of fading into the background but committed efforts sees them back into the game.

An Abundance of Riches for Micron stock

But the third and biggest argument why you should believe in MU stock is the vast riches of opportunity. Unlike many other companies, Micron seemingly has no limits to where it can turn. Whether video gaming, Internet of Things, or even bitcoin, the tech firm can exploit anything and everything.

Even well-established markets like smartphones can invigorate Micron stock. For instance, The Wall Street Journal indicated that a growing number of people are willing to fork over four digits to get the latest and greatest gadgets. I think it’s insanity. Nevertheless, never argue with a willing buyer. And I know MU executives will be laughing to the bank as they pocket one contract after another.

The next couple of months will be interesting as investors will find out if MU stock can break years-long resistance. For what it’s worth, I’m confident that it will. I’m never one to dismiss the power of mass-investor psychology, but I also believe in the fundamentals. In this case, the industry tailwinds are simply more powerful.

Josh Enomoto is long bitcoin.

The post Micron Technology (MU) Stock’s Fundamentals Will Break Technical Deadlock appeared first on InvestorPlace.