After breaking the $98 resistance with a huge gap and significant volume at the previous earnings report, Micron Technologies held the gains and stayed between 105 and 130.5 for weeks. Recently, however, market expectations for Micron have improved for this quarter and the upcoming quarters, shifting the previously low positive slope trajectory to a higher sloped one.
Several reasons contribute to this change. The first is continuing AI optimism. That came with Nvidia earnings. AI demand creates opportunities for Micron due to increased DRAM demand. Additionally, AI-powered personalized computers might further increase the demand for PCs, which would also benefit MU’s chips. Micron is aware of this potential and has been looking to increase production capacity for the last few years. The latest news from Nikkei reported that, on top of the US investment where Micron received billions in government subsidies, MU is also looking to invest in Malaysia. For more short term, Trendforce data bring positive momentum. According to Trendforce, memory demand might exceed supply by more than 20% in the second half of 2024, which could cause spikes in memory prices and boost MU’s prospects in the coming months.
(MU Daily Logarithmic Chart)
Looking at the 2- and 5-year averages, Micron is priced below its historical averages for forward P/E and EV/EBITDA ratios by a significant margin. Technicals also support the fundamentals. The $98 breakout was a major one. After breaking a 3-year resistance, Micron jumped to 130.5 and formed a second base resistance. Instead of waiting for the June 26 earnings report, the breakout came sooner this time, again with strong volume. Now the door to $180 is open.
What are the risks?
The risk of a long position is not insignificant as the price has already extended. Expectations for a strong earnings report are increasing, but the reasoning behind this optimism is rational. However, if these expectations are not met, a sharp sell-off might begin. Depending on the report, this could present a buying opportunity for the longer run.
The second risk is the AI sector in general. With Nvidia at the helm, AI optimism has driven historically large stock surges. Any sell-off in NVDA might trigger a chain reaction.
Conclusion
Micron’s earnings report is on June 26, and trading this close to the report is very risky. However, the prospects look very good technically, fundamentally, and sentimentally. For now, any retreat in stock prices might create buying opportunities as long as the price holds above the 50-day exponential moving average.
