The Endgame for Micron Stock
Although shares of Micron Technology, Inc. (NASDAQ:MU) have taken a beating these past 12 months, the long-term outlook for MU stock never looked better. Cloud computing is changing the very nature of microprocessor chips, guiding humanity closer to artificial intelligence-and Micron stock closer to the heavens.
Micron stock is down 51% this year, far below the 7.6% return for the NASDAQ Composite. There are two major factors weighing on MU stock, but they won’t harm it as much as investors think.
MU stock will benefit from a broad trend in the semiconductor space to fundamentally alter the structure of microprocessor chips. Rather than wire the chips to execute a logical function, the new designs constantly learn and re-evaluate to promote better efficiency.
To put it simply, the industry is gearing microprocessor chips towards thinking. Here’s why that’s great news for Micron stock. (Source: “Watch Out Intel, Here Comes Facebook,” Barron’s, October 31, 2015.)
Micron Stock Can Win on AI Chips
The growing demand for cloud computing could spell huge returns for Micron stock, particularly in light of these borderline-AI chips. The company came of age as cloud computing grew in popularity, meaning its chips are better designed for the future.
A majority of traditional chips are geared towards processing large sequences of commands that tell it what to do. Micron makes chips that process huge quantities of data to find the patterns it was instructed to look for. There’s an important distinction there that could lead Micron stock to a multiple of its current price.
All competitors of Micron are now trying to emulate those types of chips. The demand for cloud computing is expected to skyrocket with the “Internet of Things” movement. Soon all our household appliances will be connected to the Internet, and the data will be processed on chips pioneered by Micron.
As the push towards full-fledged artificial intelligence continues, MU stock will edge higher. After all, Micron isn’t fully unravelling the mysteries of the brain by reverse-engineering neural pathways; it’s simply building chips that recognize patterns the way humans do. They have immediate commercial value, making a gold mine for Micron.
Why Micron Stock is Down
Why, in this case, is Micron stock lagging so far behind? There are two reasons.
First is the demand for personal computers and laptops. Part of the fall in Micron stock was quite simply because retailers registered low sales for laptops and computers during 2015, a reflection of lingering weakness in the global economy.
Micron and others are dependent on the revenue from “DRAM chips” used in such devices. Many analysts are worried about a permanent reduction of PC and laptop sales, worrying that tablets and smartphones have cannibalized a portion of demand.
MU stock now has to defend its market share in a price war to see which firm will get the scraps. And then there’s the second weight on Micron stock: industry consolidation.
Every other week we heard about semiconductor firms buying out each other or merging to weather the price war. In total, there was $136 billion worth of merger and acquisition activity in the semiconductor space. Since Micron hasn’t found allies to help weather the coming storm, conventional wisdom dictates that MU stock is worthless.
To me, it just seems as if not enough analysts pay attention to the actual structure of microprocessor chips. The physical technology that supports Micron stock is the technology of the future, and that’s what counts.