Can you still buy Micron (MU) up 10%? Is it too dangerous to buy the DRAM and flash semiconductor company after this one-day move, given that it raised earnings estimates by almost 50% last night?
The answer lies in history.
Micron makes commodity semiconductors, and when you make commodities you get a boom-and-bust cycle.
It's always been that way and it always will be.
On the conference call last night, the company told you that supply is tight, demand is voracious and despite big price increases there has been no demand destruction.
The problem here is that's always been the case. It's the case right up until there's more DRAMs and flash memory than the market can bear.
How do I know this? Consider the history of Micron. Back in November 1993, demand started soaring for DRAMs when the stock was at $3.80. It peaked in September 1995 at $47 on a legendary call by a top-flight semi analyst that demand had been overwhelmed by supply. The tipping point had been reached. Less than a year later, the stock was back to $8.
Then we got another cycle that started with Micron's stock at $17 in April 1999 and it rallied to an outrageous $98 in June 2000 as the dot-com bubble was in full swing. Then you had one of the most precipitous falls I have ever seen, a 2½-year plunge to $8 in January 2003.
It stayed down until November 2012 when it stood at $5. Two years later, it went to $36 where it peaked, pirouetted and fell to $10 in February 2016.
This most recent run started there and you can tell from the magnitude of the rally, $10 to $30 is the smallest percentage gain of the booms and busts. If history be the case, then it is not too late to buy.
Moreover, previously Micron was largely a personal-computer chip company. This time data centers are filled with its chips. This time Nvidia (NVDA) uses its chips for all sorts of devices. And this time Micron has diversified into flash, which is the chip that goes into all sorts of cellphones, and that makes for an incredible demand base.
This time, also, there are fewer competitors than previous runs, which is why management could be so bullish on its call despite skeptical analysts who are more than familiar with this boom-bust pattern and seem eager to get off the train before it crashes again.
I think they are too early and you've got more room to run. Plus, there are many short-sellers playing the bust and it's not panning out for them.
And this flash situation has a new wrinkle. It's tight with, again, fewer competitors, with one, Western Digital (WDC) being a dominant player after it bought SanDisk and is being very shrewd and tight with supply, hence that stock's rocketing almost four points today.
In other words, there are distinct positives to this cycle, including a new Apple (AAPL) iPhone 8 that might eat up a lot of supply that's not due until later in the year. (Western Digital and Apple are part of TheStreet's Action Alerts PLUS portfolio.)
Nothing's trickier than a boom-bust stock. Micron's very different from proprietary chip makers like Broadcom (AVGO) or Nvidia or even Advanced Micro (AMD) and Intel (INTC) . It needs chip-making equipment like my favorite, Lam Research (LRCX) , but also KLA-Tencor (KLAC) and ASML Holdings (ASML) , all of which have many different customers and were up nicely today.
But I think as a speculation MU, or MOO as we call it, is still in raging-bull mode and you are free to buy it until we get much closer than that one incremental chip that sends it over the peak and back down to oblivion.