Is Micron Technology, Inc. (NASDAQ:MU) Recent Run Sustainable?

October 18, 2017, 10:39 am ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Micron Technology, Inc. (NASDAQ:MU) recently reported its fourth quarter results, which beat analysts’ expectations by a huge margin. The company’s stock price rallied to new 15-year highs after its impressive results.

The company has historically experienced whipsaw reactions in its stock price as evidenced by the vacuum crash in the company’s stock price starting in early 2015 up to mid-2016. However, the company has since reversed its downward spiral, and has been trending upwards from mid-2016 culminating in its recent rally.

The 2015 crash was not the first given that another crash had ended at the beginning of 2013 given that the company operates in a highly cyclical market. The company’s recent run raises the question as to whether the rally is sustainable over the long-term or if investors should be worried about another crash in its stock price.

Micron faces stiff competition in the semiconductor industry from Intel Corporation (NASDAQ:INTC) and Western Digital Corp (NASDAQ:WDC). The previous crash was triggered by fears of a global oversupply of memory chips after the Chinese government initiated a program to make China self-sufficient in meeting demand for semiconductors.

The main beneficiaries from the Chinese initiative were manufacturers such as SK Hynix, Samsung and Intel, which have chip manufacturing facilities in China. The country remains the world’s largest semiconductor market accounting for about 44% of the global memory chip demand in 2016.

China continues to affect Micron up to date given that the stock dipped below a crucial support level in August this year on rumors that the Chinese government was set to acquire some memory chip manufacturers.

Some factors favoring Micron’s recent performance include the growing demand for memory chips globally, which has allowed the company to raise its selling prices. The company is also benefitting from increased demand for AI chips as well as machine learning chips whose demand is growing exponentially.

The above factors favor Micron, which has curved a niche for itself, by providing high-speed chips for AI and machine learning applications. The company is charting out a strong growth trajectory for fiscal 2018 under the leadership of CEO Sanjay Mehrotra, who is responsible for Micron’s current positive performance.

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