Cramer: Supply Is Begetting Demand for Micron Shares

 | Oct 12, 2017 | 12:47 PM EDT
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AMAT

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lrcx

Is supply begetting demand? That's sure what it feels like with this Micron Technology (MU) situation. They want to sell $1 billion of stock -- and it looks like they will get $40.

Then next thing you know, they are selling $1.2 billion and they are pricing it at $41 and the darned thing hangs up there.

This is a sure sign that institutions are thrilled that they can buy this company -- one that not one wanted at $28 -- and not roil the stock. There's enough around to get a full position on knowing that they are using a big part of the proceeds -- $476 million -- to pay down debt and the rest to buy more machines that make semiconductor machines.

This is a please-all situation, as Micron's balance sheet is no beauty, and if you own machine makers Lam Research Corp (LRCX) and Applied Materials (AMAT) , you are grateful for the orders.

So every stock spikes.

There was a view not that long ago that there would be a dramatic decline in chip pricing, but that's no longer the case: witness the price tag boost from $40 to $60 by Barclays this morning.

Micron had been the cheapest stock on forward earnings in the S&P 500, at least now that the auto companies' stocks have moved, selling at only 5x next year's earnings. That's because of the general belief that pricing has never stayed this strong for this long.

Now it looks like the data center strength for flash and the telco demand for memory could elongate the cycle -- making this cheap stock too cheap, as that will keep pricing stable to tighter.

Normally it would be a bad sign that Micron's issuing the stock -- kind of like a bad IPO, knowing that this is the last bad quarter. Instead, though, it is being viewed as a chance for Micron to be prudent and for it also to add a decent amount of capacity to keep earnings growing while not creating excess flash or DRAM supply.

Put it all together and you have a virtuous cycle that never used to exist in tech, but does now because of e-commerce, machine learning and the expansion of the cellphone's ability to do just about everything.

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