What happened

Shares of Micron Technology (NASDAQ:MU) gained 69.5% last year, according to data provided by S&P Global Market Intelligence. That compares to a return of 28.9% for the S&P 500 index.

It was a bumpy ride for Micron shareholders last year. The company has been navigating through a down cycle in average selling prices for its memory and storage products, including DRAM and NAND memory used in solid state drives (SSDs). The tough environment has pressured revenue and profits in recent quarters.

However, Micron reported improving business trends toward the end of the year. Investors are anticipating a more favorable environment for selling prices in 2020, which is why the stock price rebounded for the year.

A man holding a tablet computer in front of displays showing stock charts.

Image source: Getty Images.

So what

Selling prices for DRAM and NAND products plunged 30% and 44%, respectively, in fiscal 2019 (which ended in August). That caused revenue to decrease by 23% year over year, and net profit was cut by more than half versus fiscal 2018. 

But the tide seems to be turning, as Micron reported a 6% sequential increase in revenue for the fiscal first quarter of 2020. Demand remains healthy for memory and storage products, so it's just a matter of waiting for pricing to firm up again. 

Now what

Management is optimistic about improving supply/demand dynamics in the short term. They believe the fiscal second quarter of 2020 will mark the bottom of Micron's gross margin performance in this cycle. A gradual recovery is expected to start in the fiscal third quarter and continue through the end of calendar 2020. 

There are plenty of catalysts beyond 2020. Micron stands to benefit from the adoption of 5G smartphones, which should boost demand for memory and storage products. Also, Micron stands to see increased demand for flash-memory products with the new gaming consoles launching in fall 2020. The Sony Playstation 5 and Microsoft Xbox Series X will include SSDs for the first time in place of hard drives. 

Plus, Micron is optimistic about its recent acquisition of FWDNXT, which will enhance its capabilities in deep-learning applications. Also, the acquisition of the IMFT joint venture from Intel positions Micron for upside in 3D XPoint products in memory and storage applications.

Even with all these catalysts, there might be better opportunities in the tech sector than Micron. The easy gains have likely played out for now, given that the increase in the share price already factors in the expectation of a recovery this year. Further gains in the stock from these levels will depend on how well the company capitalizes on new product cycles, such as 5G, gaming consoles, and data center. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.