MU Stock Predictions: Why The Contest Between AMD And Intel Is Good For Micron

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First

MU Stock Predictions

Summary:

  • The intensified showdown between AMD’s Ryzen and Intel’s 8th-Gen PC processors provokes people to buy new computer purchases or do upgrades.
  • Micron’s desktop and laptop DRAM sales benefits from a surge in new PC purchases and or upgrades.
  • DRAM contributes more than 60% of Micron’s revenue. PC DRAM prices continue to surge.
  • More people buying new PCs during surging DRAM prices are dual tailwinds for Micron.
  • MU has positive near, intermediate, and long-term algorithmic forecasts from I Know First.

My last buy recommendation for Micron (MU) was last September 2, 2016. MU has since returned +82.34% but I am still reiterating a buy rating for it. Surging DRAM prices starting 2nd half of 2016 was my reason to endorse MU as a buy last September. However, the continuing surge in DRAM and NAND flash storage prices remains an obvious tailwind for MU. Micron’s stock could post a new 52-week high before 2017 ends. I won’t be surprised if MU breaches $34 before 2017 ends.

I expect PC DRAM prices to surge 2-4% per month for each remaining month of Q3 and Q4 2017.  Q2 delivered a 12% Quarter-over-Quarter growth in DRAM contract prices. Samsung (SSNLF) will reportedly raise its DRAM prices by 10%-20% in Q4 2017. It goes to show there’s still a strong demand for DRAM and buyers are willing to pay more. Like Samsung, Micron could also find eager buyers even if it also raise its DRAM prices.

MU Stock Predictions

(Source: Morningstar)pc

Further, Micron’s Fab-2 DRAM factory that was suspended last month should be operational by now. Micron could be again at peak PC DRAM production capability starting this August.

The upward trend of PC DRAM modules coincides with the intensified showdown between Advanced Micro Devices (AMD) and Intel (INTC). The growing popularity of AMD’s Ryzen processors has obliged Intel to release its 8th-generation 14-nanometer Coffee Lake processors. The contest between these two firms usually leads to people and companies buying new computers (or making upgrades) to take advantage of the new x86 processors.

A surge in new PC purchases during this period of surging PC DRAM prices are double tailwinds for Micron. Buying more DDR4 RAM modules is part of upgrading or buying new computers. Gamers and content creators excited to maximize the total compute power of a 16-core AMD Ryzen Threadripper will definitely buy the latest and fastest DDR4 SDRAM 8 GB/16GB modules.

The minimal benchmark score differences between an AMD Threadripper and an Intel Core i9 processors could be ignored. However, the difference between having 64GB DDR4 SDRAM and 16GB SDRAM is obvious. Micron has obvious benefits when gamers and high-end PC buyers starts loading up their latest PC rigs with 8GB/16GB DDR4 SDRAM modules to get a 32GB/64GB/128GB DRAM load-out.

Micron has 8GB/16GB DDR4 products for PC manufacturers and third-party RAM resellers.

MU Stock Predictions

(Source: Micron)

Why It Matters

More than 60% of Micron’s revenue comes from DRAM products. Timely events coincidentally leading to computer manufacturers (and people) buying more DRAM modules is a compelling reason to go long MU.  A global surge in PC buying/upgrading could lead to Micron posting 5 Quarter-over-Quarter increase in DRAM revenue for the next 2 or 3 quarters.

MU Stock Predictions

Intel and AMD will probably engage in a price war to attract OEMs and ordinary customers to buy their latest 14-nm x86 processors. The savings from the said upcoming price war over processors could allow people to allocate more money to buy more DRAM. It makes little sense to buy $999.999 Threadripper processors without also allocating enough money to buy at least 32GB of the fastest DDR4 SDRAM.

Further, DRAM is always the cheapest way to improve the performance of desktop and laptop computers. A $50 or $100 savings on cheaper Intel Core i9 processors can go to purchasing extra 32GB worth of DDR4 SDRAM or SODIMM memory sticks.

Conclusion

A strong demand for DRAM and a consistent uptrend in DRAM pricing are two good reasons to remain long (or go long) Micron. I will be satisfied if MU hits $35 before 2017 ends. However, the average 12-month price target of TipRanks-tracked Wall Street analysts for MU is $41.47. It might be smart to buy MU while it still trades below $32.

MU Stock Predictions

(Source: TipRanks)

Aside from the fight over consumer PCs, Intel and AMD are also involved in an intensified battle over server processors. AMD’s EPYC is now a cost effective replacement for pricey Intel Xeon processors. The savings from switching to AMD EPYC could inspire more data center operators to allocate more budget toward purchases of more server-grade DRAM and flash storage.

Server-grade DRAM price trend is also surging because of a short supply. Micron is the no.3 supplier of server DRAM products. Server DRAM sales in Q2 went up by 30%. A simultaneous growth in demand for consumer and server DRAM products is again a tailwind for MU.

My positive outlook for Micron’s stock is supported by its very positive algorithmic forecasts from I Know First.

MU Stock Predictions

My bullish call for MU is also in line with the positive confidence signal from hedge funds. Micron is clearly getting the buy-side treatment from hedge fund managers since Q2 2016. It is always good to shadow the investing choices of the big boys of the stock market.

MU Stock Predictions

(Source: TipRanks)

Past I Know First Forecast Success with MU

On September 2nd, 2016, I Know First published a bullish article on MU. Reasons for the optimism a year ago included: High demand for NAND Flash and DRAM (just like today), and a increasingly positive hedge fun activity on MU for 2016. As you have read throughout this article, MU’s price almost phenomenally increased by 82.99%.
MU Stock Predictions

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.

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