After Advanced Micro Devices (NASDAQ:AMD) raised its outlook and Nvidia (NASDAQ:NVDA) traded at new highs, markets did not expect Micron (NASDAQ:MU) to issue downside guidance at a Keybanc-hosted fireside chat. MU shares closed at below $46 last week, implying 16.6 times forward P/E. This creates a value opportunity.
Micron’s CFO, David Zinsner, said at the event that it expected Q1 revenue will come in below the $5.4 - $5.6 billion guidance. Similarly, Western Digital (NASDAQ:WDC) issued a weak outlook for its hard disk and NAND-based storage product. If investors bet that the downside cycle in semiconductors will not last more than one to two quarters, then Micron stock is an investing opportunity. In hindsight, investors who recognized MU stock as a cyclical stock would have sold the stock at $55 - $61.
Micron is not like AMD or NVDA stock. Both are growing market share in the data center and computing space. Conversely, Micron’s profit margins depend on DRAM and NAND pricing. Whenever there are oversupply and weaker demand, prices fall. Micron’s revenue falls, sending shares lower.
In the weeks ahead of the MU earnings report, shares may trend in the $35 - $45 range. The stock is unlikely to re-visit the $35 March lows. If it did, value investors should buy more shares there.
