Up 50% And Then Down 25% This Year: What Explains These Wild Swings In Micron Stock?

Micron Technology (NASDAQ: MU) stock has dropped more than 25% in the last two months after a brisk 50% growth in the first half of the year. This trend largely mirrors movements in stock price for the company’s peer in the semiconductor industry Applied Materials (NASDAQ: AMAT) – which first gained 46% in the first six months of the year only to drop almost 20%. In contrast, its other peer, Advanced Micro Devices (NASDAQ: AMD) has witnessed much lesser volatility in its stock price and has largely traded sideways this year.

Notably, the semiconductor industry is at a transitionary stage as witnessed by a shrinking product life cycle and technology obsolescence of some of the traditional product segments, on one hand, and increasing demand for AI chips and futuristic products on the other. Notably, this has resulted in Intel (NASDAQ: INTC) losing market share, while Nvidia (NASDAQ: NVDA) gained big. The uncertainty surrounding future business prospects has turned stocks from the sector, including Micron, volatile.

The key is Micron’s stock is still roughly double the level it was at the beginning of 2023. Our dashboard Why Micron Stock Moved provides the key numbers behind our thinking, and we explain more below. 

Revenue, Margins

Micron’s stock turned upbeat beginning December 2023, after it published its Q1 results. While in 2023 it reported sales figures that were roughly half the number in 2022, the price rise since then is justified by strong y-o-y quarterly sales growths of 16%,  58%, and 82% for the three quarterly periods of the current fiscal. Moreover, the company’s net margin turned positive in the last two quarters.

Micron has been benefiting from a recovery in the memory market, with the price for DRAM chips picking up after seeing a big decline following Covid-19. For instance, Trendforce forecasts that server-side DRAM memory prices could rise by as much as 13% sequentially over Q3, while PC memory could rise by about 8%. The growth is being driven by lower recent capital spending by the DRAM producers, as well as higher demand from the generative AI space. However, Micron’s guidance for Q4, which projects earnings of between $1 and $1.16 per share on an adjusted basis, was only in line with consensus and this appears to have contributed in part to the sell-off in the last two months.

Does MU stock look attractive now?

Overall, the performance of MU stock with respect to the index has been quite volatile. Returns for the stock were 24% in 2021, -46% in 2022, and 72% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that MU underperformed the S&P in 2021 and 2022.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; including other heavyweights in the Semiconductor sector including AMD, NVDA, and AMAT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could MU continue to face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

Going forward, we expect Micron’s revenues to touch $21 billion in 2024, with an adjusted full-year estimated EPS of $0.18 after posting a loss in 2023. So, MU stock is likely to have overcorrected to around $97 as against its fair value of $114 – Trefis’s estimate for Micron’s valuation. But, given the cyclicality in the semiconductor industry, where profits fluctuate rapidly and considerably, investing in the stock based on short-term value expectations can be risky.

[1] Returns as of 8/28/2024
[2] Cumulative total returns since the end of 2016

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