Micron Technology (MU -0.25%) has served as a leader in the memory chip industry since its founding in 1978. Its chips have long supported the PC and smartphone segments, and its semiconductors have now become integral to numerous emerging industries.
However, Micron stock has experienced notable periods of both outsized growth and massive declines during that time. While investors can succeed with Micron stock, those gains may hinge on the ability to understand and endure memory price cycles, both technically and emotionally.
The state of Micron stock
Indeed, investors should consider Micron stock a winner, at least from a macro perspective. The stock launched its IPO in 1984 at a split-adjusted $1.40 per share.
Now, the stock trades at a discount of just under 50% from its 52-week high. But even after that price drop, Micron stock is up 37-fold in its 38-year history. Over the same period, the S&P 500 has risen slightly less than 25-fold.
It is also the U.S.'s leading company in the memory chip market. Its DRAM chips accounted for 73% of its revenue in the third quarter of 2022. Micron and two South Korean companies, Samsung and SK Hynix, dominate this market. NAND, or flash memory, made up about 26% of its revenue in the same quarter.
Moreover, emerging applications in AI, 5G, IoT, data centers, and other areas have taken demand to much higher levels. Thus, market conditions should continue to serve as a tailwind for both Micron and its stock.
The difficulty of owning Micron
As mentioned, Micron stock has lost almost half of its value. Many investors might assume that's the problem. While nobody likes to see their stocks give up past gains, such drops are not unique to Micron. Many other semiconductor stocks have experienced similar declines during this Nasdaq Composite bear market. Also, cycles have long defined the semiconductor industry, as it continuously swings between chip shortages and surpluses.
Unfortunately, the difficulty of owning Micron stems from memory chips being the industry segment most severely affected by market swings. When chip prices declined, it has always affected Micron more severely than companies in other segments of the chip industry.
Advisors typically tell investors to ride out such bear markets. According to Hartford Funds, the average length of a bear market is 9.6 months. This means that even the worst bear markets mean short- to medium-term pain for investors, after which they should benefit from a period of gains averaging 2.7 years.
However, this strategy has not always worked in Micron's case. Chip surpluses often wiped out all the Micron stock increases made during its boom times. So severe was the pain that Micron logged no significant net gains between 1995 and the end of 2015.
Even most experienced investors lack the emotional fortitude, or the time, to ride out such a long period of stagnation. As an alternative, many investors may want to turn to a chip stock like Nvidia, which has typically experienced more brief periods of decline.
The good news for Micron investors
Fortunately for Micron stockholders, the stock has generally trended upward since 2016, mostly because of the aforementioned emerging applications. That period has included some substantial short-term pullbacks. Fortunately, those declines did not wipe out all the gains of the previous bull cycles.
The Micron uptrend will probably continue as long as a rapid period of innovation remains in place. Nonetheless, should long-term growth in emerging industries such as AI and data centers begin to slow, the company's stock could become stagnant again. Some stockholders may succeed under those circumstances, but investors unprepared for such conditions and the corresponding emotional pain should probably avoid Micron stock.