Bull of the Day: Micron (MU)

Micron (MU) has been a Zacks #1 Rank since late May after the company's Analyst & Investor Event when CEO Sanjay Mehrotra raised guidance for Q3 and unveiled their powerful growth plans in multiple markets, including datacenters, mobile, cars, and the IoT.

The maker of dynamic random access memory (DRAM), NAND flash memory, CMOS image sensors, and other semiconductor components sees a burgeoning data-hungry economy with memory-intensive applications driving secular growth across their markets.

But the stock has gone nowhere since May as some analysts and investors worry about the coming peak in the semiconductor cycle amid a potential glut of memory products.

And this despite EPS estimates rising again since their Q3 report (FY18 ends in August) on June 20. For fiscal year 2019 (beginning September), consensus profit projections rose from $10.75 to $11.30.

This makes Micron trade at under 5 times forward earnings estimates. Granted, memory chip makers tend to trade in a valuation range of only 5 to 9 times. But from the current market reaction, one might think the end of the cycle was indeed imminent.

A Big Look at the Big-Data Economy

There are also concerns about the impact of escalating trade battles between the US and China, with intellectual property disputes at the center as the world's second-largest economy seeks to build its own technology empire by the year 2025.

But the world's "data economy" as Micron calls it is inextricably intertwined and semiconductor manufacturing and testing happens across multiple borders before a product is finished. This is another reason that tariffs will be harmful to US companies.

More on the tariff tantrums in a moment. First, let's look at what Micron sees for growth in their end markets over the coming years from two slides in the 150-slide deck that they dropped on Wall Street in May...

Unless a global recession is about to unfold, how can any technology investor not be involved in these trends? As I wrote for Zacks Confidential on Monday in my special report Artificial Intelligence: Investing in Life 3.0 ...

You have only to listen to CEO Sanjay Mehrotra describe their business to understand how advanced computing technologies and devices are driving record sales beyond all predictions about a pending top of the cycle.

As Micron saw the opportunities beyond PCs in the cloud, mobile, cars and the IoT, they knew they had to become invaluable partners with their customers to create specialized and often custom products and solutions. These efforts have kept them invaluable.

Plus, Mehrotra believes that Artificial Intelligence is in its very early stages of growth where "we're barely seeing the tip of the ice berg."

My special AI report includes broader industry growth projections for cloud/datacenter, AR (augmented reality), and the evolution of "smart cities," which encompasses multiple sectors -- energy, transportation, construction, infrastructure, healthcare -- and could have economic impacts of $1.5 trillion by 2020.

If you are not a Zacks Confidential subscriber, just email and tell them Cooker sent you.

Semi Nervous

In late June, I made a video and article to help explain what was happening with chip stocks. Here's the link, followed by an excerpt below...

Semi Nervous: China Trade Battles Sink Chip Stocks (video and article link)

Caught in the middle of the White House "America First" agenda are a number of big US companies who complain that the tariffs penalize them for their globe-spanning supply chains. And the Semiconductor industry may be the most vulnerable right now.

Global supply chains for Semiconductor manufacturing and equipment are probably some of the most complicated. Tariffs will definitely throw a wrench in the works.

Chips are often designed and produced in the US, sent to China for packaging or testing and then returned back to the States. The chips would now be subject to tariffs on the return trip.

Earlier this month, a spokesman for the Semiconductor Industry Association made their views clear...

"Tariffs on semiconductors would harm, not help, U.S. semiconductor companies, their workers, and American consumers."

In the video that accompanies this article, I go over the last few week's of "trade battle" rhetoric that have led to a 9% sell-off in the Philadelphia Semiconductor Index (SOX), and individual declines (from their June peaks) in these 4 chip stocks...

Lam Research (LRCX): -17%

Applied Materials (AMAT): -14%

These first 2 companies are wafer fabrication equipment (WFE) makers for the actual chip makers like Intel (INTC), Samsung, Micron and even NVIDIA.

Micron (MU): -13.5%


(end of June video/article excerpt which has more info on the China 2025 plan to build their own technology empire)

Speaking of Samsung, we got news today that the Korean tech behemoth is deploying plans to invest $22 billion in four key areas including AI, 5G mobile network technology, automotive innovations and bio-pharma.

In a CNBC article on Wednesday, Saheli Roy Choudhury wrote...

Overall, the conglomerate said it planned to invest a total of 180 trillion won ($161 billion) over the next three years, which will include capital expenditures as well as research and development in its semiconductors and displays businesses. Most of that investment - about 130 trillion won of the total - will be spent in South Korea, the company said without giving further breakdowns.

This is just further proof that my Technology Super Cycle is far from over.

Cooker's bottom line on Micron: Since the Tech Super Cycle is far from over, Micron isn't done make artillery for it either. MU trades under 5X EPS because of the fear and pessimism about China and trade. But I think the stock could be trading 7X ($77) by this time next year.

Disclosure: I own shares of MU, NVDA, and AMAT for the Zacks TAZR Trader portfolio.

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NVIDIA Corporation (NVDA): Free Stock Analysis Report

Micron Technology, Inc. (MU): Free Stock Analysis Report

Lam Research Corporation (LRCX): Free Stock Analysis Report

Intel Corporation (INTC): Free Stock Analysis Report

Applied Materials, Inc. (AMAT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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