MU Stock: Why Shares of Micron Technology, Inc. Are Going Crazy

MU StockWhat’s Happening With MU Stock

Shares of Micron Technology, Inc. (NASDAQ:MU) spiked by double digits the week before Christmas, mostly due to the company’s stellar second-quarter earnings.

That being said, let’s find out what industry trends are shaping Micron stock (MU) and whether or not those trends could keep MU stock surging. Here’s what happened.

Micron makes two types of microchips: “DRAM” and “NAND.” Typically these chips were used to build computers, but that business isn’t growing as fast. Naturally, most investors took the PC slowdown as bad news for MU stock. But they didn’t know that Micron had planned ahead.

Micron shifted its sales focus away from PCs. The company only makes 20% of its DRAM sales to PC customers these days, down from much higher numbers in the past. This means that Micron’s upper management had seen the writing on the wall—they knew PCs were done. (Source: “Micron Soars 13%: Partying Like Never Before in Memory Chips, Says Street,” Barron’s, December 22, 2016.)

By contrast, DRAM chips for mobile products grew to 30% from 25% a year before. Even Micron’s specialty products bring in as much revenue as PC sales. Investors are finally taking notice of these changes, hence the sudden uptick in Micron stock.

MU stock jumped almost 13% in after-hours trading when the first-quarter results came out.

The results were even strong enough to convert some of Micron’s biggest critics. For instance, analyst Rajvindra Gill from Needham & Co. used to be extremely bearish on MU stock. He had nothing good to say about the company, but he started singing a different tune after these results.

He updated Micron stock to a “Buy” and threw in a $33.00 price target. To his credit, Gill admitted that he was “late to the party,” but we still think he is underestimating the potential of this chipmaker. Just look at its upside in the cloud computing market.

Only five percent to 10% of corporate workloads are on the cloud, so there’s a long way to go before this industry maxes out its potential. These insights are still sinking into the ether, meaning that Micron stock will only remain undervalued for a short amount of time.