Winning Stock Forecast: Micron (MU) On the Path to Success Despite Staggering Stock Prices

[Source: Wikimedia Commons, May 15th, 2018]

“Near-term conditions are in fact exceptional, and the exceptional cloud spending that has driven such conditions seems likely to persist. So, our ‘stronger for longer’ thesis remains intact.”

–Morgan Stanley Analyst Joseph Moore

Micron Technology is nearing a potentially big breakout, one that may result in shares jumping by nearly 15%, to roughly $61.50, from its current price around $53.50. Over the past 12 months, Micron Technologies stock has risen from its original price of $28.90 to $51.80, jumping a whopping 79%. Additionally, Micron stock has outperformed the market by nearly 65% over this time period. But that doesn’t mean it has been only smooth sailing, despite the significant rise, shares are nearly 13% off their 2018 highs. The following explanations give rise to the rapid increase in MU stock despite the industries characteristic volatile movements.

Micron Technology underperformed the industry-wide Server DRAM market in 2017 despite forecasts of strong growth in the sector. Additionally, internet protocol traffic in public clouds data centers is expected to nearly triple from 96,054 Petabytes per month in 2016 to 278,108 PB per month in 2021. Server DRAM demand is forecast to increase from 17,789 million Gb to 98,218 million Gb – a 452% growth between 2017 and 2021.

[Source: Yahoo Finance, May 15th, 2018]

Micron May Break Out Leading to a 15% Rise

[Source: MU data by YCharts, May 15th, 2018]

Micron shares have recently emerged from a technical pattern called a descending wedge, which is a bullish reversal pattern. It serves as an indication that Micron has likely reversed the recent downtrend from mid-March through early May 2018. Additionally, Micron found a stable level of technical support at $45.25 at the start of May on two separate occasions, another bullish technical pattern, known as a double bottom. Shares currently sit just below a critical technical resistance level at $54, and should it rise above resistance the stock could very well be back on its way toward $61.50.

The relative strength index (RSI) has also turned positive after bottoming out on three occasions around $37. Additionally, the RSI is now beginning to trend higher, and with a reading around $60, it still has a distance to go before reaching overbought conditions around $70. Volume has also been tapering off since mid-March, and that may indicate that sellers are now backing away from the stock. Ideally, one would want to see a surge in buying volume on a breakout above $54.

DRAM Analysis

Table 1 below is an update on MU’s performance in 2016, where Server DRAM represented 10% of MU’s sales compared to 9% for the entire industry. For 2017, MU’s Server share of revenues increased to 15%, but industry wide, Server shares represented 19% of the market.

According to MU’s 10-K, for 2017, “20% of the company’s net sales were to the compute and graphics market (including desktop PCs, notebooks, and workstations); 20% were to mobile; 20% were to SSD and other storage; 15% were to automotive, industrial, medical, and other embedded; and 15% were to server.”

According to The Information Network’s report “The Global Semiconductor Equipment: Markets, Market Shares, Market Forecasts,” DRAMs for Server applications will nearly double between 2017 and 2019.

Keep in mind  that the DRAMs for Graphics sector will also show significant growth. As public cloud computing companies’ share of data traffic increases, demand for graphics processing units (GPU) and server DRAM will increase. Big data additionally creates new demand for both general purpose GPU, and busier data traffic drives up demand for server DRAM. Server DRAM’s share of total DRAM demand should increase from 20% in 2017 to 25% in 2019.  This strong and constant demand for Server DRAM is a result of greater CAPEx from cloud computing service providers. For instance, there are more than 400 massive hyperscale data centers around the world, defined as having a minimum of 5,000 servers.

DRAM prices and memory supplier fundamentals are tied to the datacenter boom, meaning that as long as Microsoft, Intel, Amazon, and Google keep reporting strong cloud growth, memory suppliers should remain attractive.

Bullish Outlook:

Thus, from the context above, it can be noted that cloud data center traffic achieved a 57% CAGR between 2015 and 2017. The cloud demands more capacity, and this has given rise to massive hyperscale data centers. A hyperscale data center is defined as having a minimum of 5,000 servers and covers at least 10,000 square feet in size, but often is much larger. There are nearly 400 hyperscale data centers around the globe, with the majority located in the U.S. That number is expected to top 500 in the next two years. The explosive growth in demand for internet bandwidth and cloud computing capacity has created a demand for Server DRAMs from Micron Technology, Samsung Electronics, and SK Hynix. All three companies stand to benefit as demand increases from 17,789 million GB to 98,218 million GB – a 452% growth between 2017 and 2021.

The long straddle options strategy suggests that shares of Micron may rise or fall by about 11% by expiration on June 15 from the $55 strike price. The cost of buying one put and call is about $6, and that places the stock in a trading range of $49 to $61. But more interesting is the ratio of puts to calls, which heavily favors the calls by nearly 12 to 1, with almost 55,000 open call contracts to roughly 4,600 open put contracts. The charts, the analysts and the options are all suggesting shares of Micron will rise. The only thing left is for Micron to actually break out.

Analyst Recommendations:

According to analyst recommendations from Yahoo Finance, the current consensus is a “Buy” in MU Stock, with 8 advising a “Strong Buy”, 19 advising a “Buy” and 3 advising a “Hold”.

On May 12th 2017, Know First issued a bullish 1- year forecast for Micron Technologies (NASDAQ: MU). The forecast illustrated a signal of 78.61 and a predictability of 0.82. In accordance with the forecast, MU stock returned 78.50% over this period, highlighting the accuracy of the prediction produced by the I Know First algorithm.

Current I Know First subscribers received this bullish MU forecast on May 12th 2017.

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About Micron Technologies:

Micron Technology, Inc. (NASDAQ: MU), incorporated on April 6, 1984, is engaged in semiconductor systems. The Company’s portfolio of memory technologies, including dynamic random-access memory (DRAM), negative-AND (NAND) Flash and NOR Flash are the basis for solid-state drives, modules, multi-chip packages and other system solutions. Its business segments include Compute and Networking Business Unit (CNBU), which includes memory products sold into compute, networking, graphics and cloud server markets; Mobile Business Unit (MBU), which includes memory products sold into smartphone, tablet and other mobile-device markets; Storage Business Unit (SBU), which includes memory products sold into enterprise, client, cloud and removable storage markets, and SBU also includes products sold to Intel through its Intel/Micron Flash Technology (IMFT) joint venture, and Embedded Business Unit (EBU), which includes memory products sold into automotive, industrial, connected home and consumer electronics markets. The Company’s memory solutions enable computing, consumer, enterprise storage, networking, mobile, embedded and automotive applications. The Company markets its products through internal sales force, independent sales representatives and distributors primarily to original equipment manufacturers (OEMs) and retailers located around the world

Disclaimer

Before making any trading decisions, consult the latest forecast as the algorithm updates predictions daily. You can use the algorithm for intra-day trading. The predictability tends to become stronger with forecasts over longer time-horizons such as the 1-month, 3-month and 1-year forecasts. Algorithmic traders utilize these daily forecasts by the I Know First market prediction system as a tool to enhance portfolio performance, verify their own analysis and act on market opportunities faster. This forecast was sent to current I Know First subscribers.