Micron Technology: Stress Test Amid AI Boom

The Micron Technology stock is under pressure after a renowned investment bank lowered its price target. The crucial question is: Should investors sell their positions or continue to trust in Micron's fundamental strengths? On Monday, Micron and other semiconductor companies faced a significant setback. The Micron stock lost 4.4% after a "Death Cross" chart pattern emerged. In this scenario, the short-term 50-day moving average falls below the long-term 200-day moving average, signaling a potential downward movement. The day before, Micron closed at $87.18, while the 50-day moving average was at $104, below the 200-day moving average of $104.75. Such a "Death Cross" pattern was last observed on April 28, 2022. The pessimistic sentiment regarding Micron was exacerbated by analysts at Morgan Stanley, who downgraded their forecasts for the memory specialist. The original price target was $140 per share; now a decline to $100 is expected. Micron is known for its cyclical nature, which means the stock is affected by economic fluctuations. However, in the long term, the outlook for Micron remains optimistic, especially due to the boom in the field of artificial intelligence (AI). In the AI graphics card segment, Micron’s high-bandwidth memory chips (HBM) are used by industry giants like NVIDIA. According to Statista, the AI industry will surpass the $184 billion mark this year and grow to over $826 billion by 2030. Micron’s management is confident about the HBM chips and expects the HBM chip market to generate $86 billion in revenue by 2030 – with a CAGR of 68%. Already now, full production capacity is being utilized to meet the increasing demand. Although Morgan Stanley views the short-term outlook critically, the strong demand for HBM chips remains a glimmer of hope for Micron's profits. Additionally, the solid liquidity position of $9.2 billion from the third quarter of 2024 ensures that the company can invest in growth-promoting acquisitions and initiatives. Micron's revenues are also likely to rise as the demand for DRAM memory reaches a record high. The consensus estimate from Zacks expects earnings per share to increase by 160.3% to $1.20 for the fiscal year. Thus, Micron could soon become attractive to investors again, especially since the stock is valued lower compared to its competitors. With a price-to-earnings ratio (P/E) of 9.3, MU is below the industry average of 10.4. Despite all the current uncertainty due to the "Death Cross" signal, the long-term perspective remains positive. Investors should therefore act prudently and use possible lows as buying opportunities. Micron has the Zacks rating #3 (Hold).