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Shares of Micron Technology (MU 7.60%) were rallying on Wednesday, up 6.7% as of 11:14 a.m. ET.
As one of only three major DRAM producers and one of only six major NAND flash producers supplying the whole world, Micron’s moves on a day-to-day basis can be shaped by macroeconomic and geopolitical events. On Wednesday, it appears that news from China is the catalyst for today’s big move.
China is a large market for memory sales and played a key role in past memory booms and busts. That was especially true last year as the countrywide “zero-COVID” shutdowns caused a plunge in memory demand, leading to a near-50% decline for Micron’s stock last year.
However, China has also harbored ambitions to develop its own chip industry, since it is such a large consumer of memory and other logic chips. Over the past decade or so, the government has shelled out billions in an effort to either grow or steal crucial chipmaking technology.
Some efforts weren’t so successful. In 2020, engineers at Taiwan’s United Microelectronics were found guilty of stealing Micron’s DRAM research technology on behalf of China’s state-owned Fujian Jinhua Integrated Circuit Co.
However, some state-subsidized Chinese companies have shown success, such as Yangtze Memory Technologies, which had recently developed highly capable NAND flash chips. In fact, Apple had even decided to use YMTC NAND in next year’s iPhone, before October’s U.S. sanctions on YMTC and political pressure caused the iPhone maker to reverse that decision. Furthermore, recent U.S. sanctions on key semiconductor equipment has threatened YMTC’s leading-edge ambitions and even its entire memory chipmaking unit.
Today, Bloomberg reported that the Chinese government may be throwing in the towel on this costly semiconductor subsidy program. It appears that while there had been widespread agreement to invest in homegrown chips, the country’s current financial strains and sanctions are spurring many high-level officials to no longer support costly investments that haven’t yet yielded material results. Instead, officials are looking for alternatives to lower input costs for the country’s chipmakers.
If China is in fact backing down from its chipmaking ambitions, that’s a win for American chipmakers like Micron that may have had to compete with future subsidized Chinese giants. However, it is likely a modest negative for chipmaking equipment makers that sell into China.
Today’s rise was certainly welcome news for Micron’s shareholders, as the memory market is in its worst bear market since 2008. While 2021 saw many chips in a shortage, that was never the case with memory chips, who have now oversupplied the market. On its recent earnings call, Micron announced deep cuts to investments this year and next, as well as plans to lay off 10% of its workforce through next year.
However, investing in the highly cyclical memory industry is often counterintuitive, with the market usually looking well ahead. With memory pricing deteriorating for the past three quarters, and with the stock having sold off so hard and trading just above its book value, Micron could be finding a bottom.
At least one analyst thinks the sector is bottoming. Today, analysts at Japanese investment bank Daiwa said in a note it sees 30% upside in Micron’s stock this year, as the analyst sees the memory sector forming a bottom in pricing this quarter. Typically, that has been a good time to invest in Micron.
While it’s too early to tell exactly how long the memory bear market will last or if the stock is in fact bottoming at around $50 per share, at these price levels, incremental positive news can lead to big moves upwards, as we are seeing today.
Billy Duberstein has positions in Apple and Micron Technology and has the following options: short January 2023 $160 calls on Micron Technology, short January 2023 $210 calls on Apple, and short January 2023 $40 puts on Micron Technology. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
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