Why Micron Technology, Inc. Could Be an Explosive 5G Stock

mu stockMU Stock Could Be an Opportunity

One of the reasons why investors like 5G stocks is that they’re often established companies that already have strong operations. In other words, you don’t have to bet on risky start-ups to get a piece of the action of the 5G revolution.

And there’s a good reason to call it a revolution. When it comes to data transmission speed, most 4G networks top out at 100 megabits per second. 5G networks, on the other hand, can theoretically reach speeds of 10 gigabits per second—100 times faster than 4G.

In other words, if you consider the move from 3G to 4G to be an evolution, the adoption of 5G could feel more like a revolution.

Speaking of established companies, one blue-chip 5G stock worth considering is Micron Technology, Inc. (NASDAQ:MU).

Headquartered in Boise, ID, Micron is a leader in the memory and storage solutions business. It offers two main types of products: dynamic random access memory (DRAM) chips and NAND memory chips.

These chips have a wide range of applications, including powering smartphones. In fact, Micron is already a supplier to all the major smartphone manufacturers, meaning it’s well positioned to benefit from the 5G era.

In a recent conference call, the company’s chief financial officer, David Zinsner, said,

As we migrate to 5G, if you want or if a mobile customer wants a 5G experience for their end customer, our best read on that is it takes at least 6 [gigabytes] of DRAM. We’ve seen [stock keeping units] at 8. We’ve seen them at 12. We’ve even seen one at 16. So this is a pretty content-rich story from a DRAM perspective in mobile as we transition to 5G.

(Source: “Micron Technology, Inc. (MU) Management Presents at Sanford C. Bernstein Operational Decisions Conference Call (Transcript),” Seeking Alpha, November 16, 2020.)

Considering that 4G smartphones tend to be equipped with four gigabytes of DRAM, 5G adoption could represent a major content opportunity for Micron.

Then there’s the sheer number of 5G handsets expected to hit the market.

It’s estimated that 200 million 5G smartphones will be produced in 2020—and that’s with the impact of the COVID-19 pandemic. In 2021, the forecast for 5G smartphone production is a whopping 500 million units. (Source: “5G Smartphone Production Expected to Exceed 200 Million Units in 2020,” everything RF, July 31, 2020.)

Combining the expected increase in handset production with the higher content opportunity in each handset, it’s pretty clear that 5G could be a major growth driver for Micron Technology, Inc.

As it turns out, the company has already been churning out impressive growth rates.

In the fourth quarter of Micron’s fiscal 2020, which ended September 3, its total revenue increased 24% year-over-year to $6.1 billion. On a quarter-over-quarter basis, the company’s top-line growth was 11%. (Source: “Micron Technology, Inc. Reports Results for the Fourth Quarter and Full Year of Fiscal 2020,” Micron Technology, Inc., September 29, 2020.)

As you’d expect from a blue-chip company, Micron is already profitable. In the reporting quarter, the company’s adjusted earnings came in at $1.08 per share. This amount represented a substantial improvement because Micron’s adjusted earnings in the previous quarter and year-ago quarter were $0.82 per share and $0.56 per share, respectively.

Of course, the memory business has its cycles, but because 5G adoption will likely be a multi-year process, it could serve as a medium- to long-term catalyst for Micron stock.

Micron Technology, Inc. (NASDAQ:MU) Stock Chart

Chart courtesy of StockCharts.com

Considering what I’ve discussed so far, Micron Technology, Inc. looks like a solid 5G stock from a fundamental perspective. However, because of the volatile market environment, investors may want to take into account the price action of the company’s shares.

Take a look at the above chart: Micron stock seems to be at a very critical point, from a technical perspective.

You see, MU stock had what’s called a double top in early 2018, which is a major reversal pattern in technical analysis. Then the stock went on a downtrend until the end of that year, after which it started bouncing back.

Note that the share price reached at the double top could be a major resistance level. During the rally at the beginning of this year—prior to the sell-off due to COVID-19—Micron stock did not break above that resistance level.

Analyst Take

After the pandemic-induced sell-off in March, MU stock hopped on a nice uptrend. And thanks to the post-election stock market rally, combined with positive news about COVID-19 vaccines, Micron shares are once again nearing their resistance level.

If Micron stock manages to break above that resistance (to be conservative, let’s define that as closing above $65.00 for three consecutive trading days), we could see the beginning of a new era for this 5G stock.