In the last month, shares of Micron (NASDAQ:MU) enjoyed a 17.3% rally. Investors are accumulating the stock solely on a bet that a resumption in trade talks between the mega economies – China and the U.S.A. – will progress positively. Lower or the elimination of tariffs would lift semiconductor sales.
For now, some chip companies are cutting output due to weak DRAM and NAND demand. SK Hynix said in July that it will cut DRAM capacity from Q4, partly to convert part of the lines at its M10 FAB to CMOS image sensor production. Despite the generally negative outlook, Micron bucked the trend by forecasting a rebound in revenue in the second half of the year. Both Seagate (NASDAQ:STX) and Western Digital (NASDAQ: WDC) stock are now hovering at yearly highs for the same reasons.
Even after STX, WDC, and MU stock rallied, the valuations are still compelling. The stock price still does not reflect the positive pricing trends for NAND and stabilizing DRAM pricing. So, even if tariffs slow sales, Micron is poised to increase sales as customers resume capacity expansion despite the trade barriers.
Micron’s fair value is around $51. This assumes revenue growth resumes next year at the earliest.
