When Micron Technology (NASDAQ:MU) topped $95 in April, the markets figured the bullish chip cycle came to an end. Micron’s quarterly results would refute that view.
Micron’s CEO, Sanjay Mehrotra, said that the chip shortage will last into 2022. This is a robust business environment for chip companies. That MU stock is not rallying back to $95 and trading with a forward price-to-earnings ratio of at least 10 times is puzzling. Markets are anticipating that Micron and other chip suppliers will increase supply, hurting prices. That scenario is impossible because there is a chip shortage in the industry. A decline in demand for NAND and DRAM chips is another more likely scenario.
After the work-from-home phase ends due to the rollout of the COVID-19 vaccine, chip demand may fall. People will have enough memory and storage for their computer systems. Plus, the 5G, artificial intelligence, and cloud computing expansion will slow for the same reasons.
Corporations that spent more on cloud-based solutions may slow their expansion plans. The infrastructure does not need more upgrades, as online volumes taper.
Micron has and will always be a value play in the semiconductor space. Speculators prefer to overpay for AMD and Nvidia. Still, Micron is a proven supplier for a growing market. The stock is cheap, limiting the downside risks should the technology sector sell-off in the coming months.
