Afraid to get on board? Micron Tech's upward trend may have another round

Zhitong App noticed that the stock price of Micron Tech (MU.US) has performed significantly better than the S&P 500 index, with a nearly 77% increase in the past year, which has surprised the bearish investors. A recent bearish article pointed out that Micron Tech has not yet emerged from its slump because they have overspent on capital expenditures during the pandemic boom.

The management demonstrated the progress the company has made in continuing to increase production during its Q1 FY2024 earnings conference. However, Micron Tech's comments indicate that the company recognizes the past overspending issue and aims to meet potential demand at a more controlled pace.

Benefiting from the AI chip revolution

Micron Tech is still in the early stages of the artificial intelligence hype cycle as it seeks to gain market share in the HBM memory market. However, the imminent entry of Samsung Electronics could reshape the industry landscape and should be noted.

As expected, the AI chip revolution has also provided support for HBM memory chips, significantly boosting Micron Tech's recovery. In addition, Micron Tech is trying to catch up with the HBM leader, SK Hynix, with a target of achieving a market share of around 20%, aligning with its leadership position in the DRAM market. However, it is equally important to note that the cyclical nature and commoditization of the memory market have not changed. With the rise of Samsung Electronics as a leading player in the memory field, the industry landscape is constantly evolving, which means there are inherent challenges in evaluating Micron Tech's short to medium-term profitability indicators.

Supply chain insiders have indicated that Samsung Electronics' in-house foundry work may encounter difficulties due to advanced packaging on HBM. Micron Tech's management has emphasized these challenges, stating that "HBM products include a logic interface chip and have a complex packaging stack, which affects production yield." Micron Tech's advanced packaging partnership with pure wafer foundry leader TSMC may give it an early advantage as Samsung Electronics tries to scale up production. Research firm JR Research predicts that Samsung Electronics will actively and determinedly gain a significant share in this field, indicating that the competition could be fierce.

A report from Kiwoom Securities predicts that Samsung Electronics' HBM production will surpass SK Hynix in the second half of 2024. Therefore, the competitive dynamics of HBM are still in the early stages as memory leaders vie for dominance. While the overall short-term supply and demand dynamics currently favor memory manufacturers, Samsung Electronics' more proactive involvement could change the game and requires close attention. It is worth noting that Samsung Electronics has been willing to sacrifice short-term profitability in the past year, which may be one of the reasons for the delayed bottoming out of the memory market cycle. With AI chips expected to become an important driver of growth, it is expected that Samsung Electronics will continue to actively compete for market share, which may impact the recovery and growth opportunities of Micron Tech.

The best entry point may have passed, but Micron Tech will continue to rise

Therefore, the long-term valuation indicators of Micron Tech indicate that the market has not fully digested the expectation of a complete recovery in the mid-term growth of Micron Tech, thus unable to explain these challenges.

The market still has a positive outlook on the price trend and valuation of Micron Tech, which is beneficial for further recovery. However, the most attractive entry point may have already passed in the current cycle.

Therefore, although the most attractive entry level for Micron Tech may have ended, JR Research firmly believes that it should continue to rise (not necessarily linearly) and retest its historical high near the $100 level.