Because it's a cyclical stock, predicting where Micron (NASDAQ:MU) will trade five years from now is a difficult task. By that time, worries about the effects of the COVID-19 pandemic will probably be just a memory, and the company could face challenges that neither analysts nor the company itself could imagine.

Either way, companies like Micron tend not to make for profitable long-term investments due to their cyclical nature. Rising demand should help boost Micron stock over time. However, with price cycles likely to remain amid the relentless drive to improve the technology, much remains unknown about where Micron stock will trade five years from now. Having said that, there are still some things we can infer about the company's potential future.

Micron stock is often a proxy for memory prices

The one thing investors can probably assume is that memory price cycles will remain in place. If history serves as a guide, memory prices will continue to fluctuate, and the price of Micron stock will likely follow suit.

A computer memory chip

Image source: Getty Images.

As the cost of memory rises, the company raises capital expenditures and production, taking both profit and the stock price higher. Conversely, when memory prices fall, Micron usually cuts capital expenditures as revenue falls and net income declines or turns negative.

This cycle has taken long-term investors on a wild ride. However, it's not a journey that has led to sustained increases in the stock price. In 1995, the stock peaked at $47.81 a share before a collapse in memory prices. It trades at approximately the same price 25 years later.

MU Chart

MU data by YCharts.

How things have changed

Despite this lack of long-term progress, investors saw one improvement materialize from the last drop in the stock price. Following the 1995 peak, a crash in memory prices hammered Micron stock. It fell to a low of $8.31 per share less than a year later. The stock price would see moves back into the single-digits as late as 2016.

Nonetheless, investors should take note that something different appears to have happened during the 2018 downturn. Another massive drop in memory prices occurred then and, as a result, Micron's net income fell to $6.35 per share for fiscal 2019. This was less than half of the $11.95 per share Micron earned in fiscal 2018. For 2020, analysts forecast a further net income decline to $2.20 per share.

However, they also see the company's net income bouncing back in fiscal 2021, earning $4.80 per share. If these predictions hold, Micron will remain profitable, even at the bottom of the cycle.

Investors can probably credit the rising demand for memory chips as the reason Micron avoided losses. The company forecasts a compound annual growth rate (CAGR) for DRAM memory chips in the mid- to high-teen percentages. DRAM made up 64% of the company's revenue in the previous quarter. For NAND chips, which encompassed 32% of revenue, management expects a CAGR of approximately 30%.

With all of the artificial intelligence (AI), virtual reality (VR), and Internet of Things (IoT) devices expected to hit the market over the next few years, the increased demand for memory chips should continue to offer hope for the growth of Micron stock.

Micron in five years

Unfortunately for long-term investors, forecasters face significant difficulties in predicting what Micron and its industry will look like five years from now.

Even the future of NAND and DRAM memory remains unclear. Last year, competitor SK Hynix began to develop a 176-layer NAND chip. In time, that will probably replace the current 128-layer chip produced by both Micron and SK Hynix. Still, the limit of how many layers manufacturers can add to a NAND chip remains unclear. In the DRAM world, 7nm DRAM remains a "fantasy" as it faces capacitor and electrical limitations when going below 10nm.

Moreover, the company depends heavily on China for sales. In 2019, just over $5 billion of the company's $23.41 billion total revenue came from mainland China and Hong Kong. Now China's Yangtze Memory says it can match longtime Micron competitor Samsung in chip production. Also, with U.S.-China relations being more uncertain following the fallout from COVID-19, it remains unclear what Micron's China market share will look like that far into the future.

Furthermore, investors have to think about the aforementioned memory price cycle. Where Micron stock will trade five years from now will probably depend on the relative cost of memory. If the cost of memory spikes significantly higher, investors could see massive returns. However, stockholders may or may not see a stock price increase if memory prices are not as robust.

In the end, the only certainty long-term investors can count on for Micron stock is uncertainty.

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.