Micron (NASDAQ:MU) is a controversial stock for bears and bulls. The maker of DRAM and NAND flash memory had a volatile 2018, rising roughly 50% in the first half...then plummeting 50% in the back half.

With a stock trading at a bargain-basement valuation of 3 times earnings and a number of cross-currents happening in the tech world, several Micron executives recently presented at the JP Morgan Tech/Auto forum, shedding light on the current industry headwinds and the products Micron is bringing to market this year.

Current headwinds

When DRAM prices were rising early last year, many of Micron's customers bought excess inventory, since they didn't know where the top in pricing would be. But eventually, supply caught up with demand. When memory prices began falling, customers used up excess inventory, since many were expecting price declines to continue in the first half of 2019.

Lights in the shape of a human brain rises off a tablet held by a man in a suit

Image source: Getty Images.

At the same time, two of Micron's biggest demand drivers -- cloud computing and mobile -- have dropped. The cloud industry is actually strong, but after huge investments in 2017 and the first half of 2018, we're currently in an "air pocket" of data center investment. Major hyperscale cloud players are now bringing up utilization rates -- meaning they're renting out their existing data center capacity, not building new facilities.

Mobile handset demand has also fallen, exemplified in recent warnings from Apple (NASDAQ: AAPL) and Samsung (NASDAQOTH: SSNLF). A downturn in mobile hurts Micron especially, as the mobile sector counts for up to 40% of DRAM and NAND demand.

But management is optimistic about 2019

While the current headwinds are very real, management also sees better times ahead.

While cloud players are currently going for higher utilization, the next wave of data center investment will likely be in artificial intelligence applications. That should help demand a lot. According to Chief Business Officer Sumit Sadana, AI-optimized servers will need six times as much DRAM as the typical server today does.

In addition, Micron also predicts better times ahead for mobile. This year will bring the first 5G-enabled phones. 5G should not only spur an upgrade cycle in mobile over the next few years, but 5G apps also require more memory content per phone -- a double positive.

New 2019 products 

Management also discussed new products that could spur optimism in 2019. Three product mentions stuck out to me.

High-bandwidth memory (HBM): Micron will unveil a new high-bandwidth memory chip later this year. Previously, HBM had been too costly to produce and scale. But since AI applications will need lots of super-fast memory, Micron is changing tacks. Sadana said at the conference that Micron will fill this "product gap" this year, as apparently the AI opportunity is enough to justify Micron's HBM investment.

NVMe (nonvolatile memory express) solid-state drives: Micron's SATA enterprise solid-state drives have been a big success this year, helping Micron's NAND flash margins in a falling NAND environment. However, the enterprise market is moving toward more expensive (but much faster) NVMe drive technology over SATA. Micron is playing catch-up in NVMe, but Sadana said Micron has made "dramatic" investments in NVMe tech over the past year and a half, and the company should have its line of enterprise-ready NVMe drives later this calendar year.

3D XPoint: Perhaps the most exciting product in Micron's pipeline is 3D XPoint, a new form of memory that is both nonvolatile (retaining data when power is turned off) and much faster than NAND flash. 3D XPoint was jointly developed by Micron and Intel (NASDAQ:INTC), so only these two have it. Only Intel is currently shipping product, but Micron is looking to make a big splash with 3D XPoint, as it exercised an option to buy out Intel's stake in IM Flash Technologies (the company's 3D XPoint JV) in October.

Sadana expressed excitement around the product, saying: "3D XPoint is going to be in our mind a really big boon to AI applications because it's going to enable very high density memory to be used with processors at a very...cost effective price point. And that will enable the dramatic expansion of the pool of memory a processor can address compared to the limitations that exist today." [Transcript via Seeking Alpha.]

In addition, CFO David Zinsner said that Micron's margin guidance is about 165 points lower than it otherwise would be, due to the investment going to 3D XPoint without the company actually manufacturing products yet. When it does in late calendar 2019, however, that will not only bolster growth but also help Micron's margins.

Will the cycle turn positive in 2019?

Micron's next quarter or two will be challenging, but with the company looking to the next cycle, enabled by AI and 5G, along with products to serve these needs, late 2019 should look much better than the first half.

Billy Duberstein owns shares of Apple and Micron Technology and has the following options: short June 2019 $25 puts on Micron Technology, long January 2020 $60 calls on Micron Technology, long January 2021 $65 calls on Micron Technology, short January 2020 $28 puts on Micron Technology, long June 2020 $70 calls on Micron Technology, short January 2019 $29 puts on Micron Technology, long January 2020 $70 calls on Micron Technology, long June 2020 $70 calls on Micron Technology, long January 2020 $80 calls on Micron Technology, long January 2020 $75 calls on Micron Technology, and short February 2019 $37 calls on Micron Technology, Short January $130 Puts on AAPL, Short $135 Puts on AAPL, Short $140 Puts on AAPL. His clients may own shares and options  in some of the companies mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.