Micron Technology, Inc. (MU), a major player in semiconductor memory solutions, recently exhibited a bearish chart pattern known as the “death cross” after an investment bank reduced its price target for the stock.
This pattern, along with other market developments, has left investors questioning whether it’s time to sell or hold on to the stock based on the company’s fundamentals.
On Monday, Micron’s stock dropped by 4.4%, leading to the appearance of a death cross pattern, where the short-term 50-day moving average fell below the long-term 200-day moving average. This indicates a potential downtrend. As of the market close, Micron’s stock price was $87.18, while the 50-day moving average was $104, compared to the 200-day average of $104.75. This marks the first occurrence of this pattern for Micron since April 2022.
Adding to the bearish outlook, Morgan Stanley recently cut its price target for Micron, expressing concern about the company’s earnings growth in the upcoming quarters. Previously targeting a $140 share price, the firm now expects Micron to trade around $100.
Despite these short-term challenges, Micron’s fundamentals could offer a brighter long-term picture. The company, which specializes in memory solutions, stands to benefit from the growing demand for artificial intelligence (AI) technologies. AI systems rely heavily on data centers requiring advanced memory solutions like Micron’s high-bandwidth memory (HBM) chips. These chips are used by industry giants such as NVIDIA, positioning Micron to capitalize on the booming AI market, expected to surpass $826 billion by 2030.
Management has expressed optimism about the growth prospects of its HBM chips, projecting revenues to reach $86 billion by 2030, up from just $1.8 billion in 2023. Additionally, Micron has reportedly maxed out its production capacity to meet the rising demand for its products.
Financially, Micron remains robust with a strong cash position of $9.2 billion as of the fiscal third quarter of 2024. Analysts also expect demand for DRAM memory, one of Micron’s key products, to rise to an all-time high, which could further boost revenues. The company’s earnings per share are projected to grow by over 160% year-on-year, according to Zacks Investment Research.
Moreover, Micron’s stock is trading at a relatively lower price-to-earnings ratio compared to its peers, making it an attractive option for value-conscious investors. Currently, MU is priced at 9.3 times forward earnings, below the Semiconductor Memory industry average of 10.4 times.
For investors weighing the death cross signal against Micron’s promising long-term outlook, the decision may come down to risk tolerance. While the death cross suggests short-term caution, the company’s strong fundamentals and AI-driven growth potential may offer opportunities for future gains. Analysts advise that those holding the stock may want to stay the course, as Micron’s long-term prospects remain favorable. For new buyers, waiting for an opportune entry point could be a prudent strategy.
Micron holds a Zacks Rank #3 (Hold), reflecting the balanced outlook on the stock’s immediate performance. However, the long-term fundamentals suggest the potential for a rebound as the company continues to play a critical role in the rapidly expanding AI and semiconductor sectors.
With input from Yahoo Finance, Tip Ranks, and Barchart.
