It's been a rough week to own Micron (MU +0.59%) stock. Beginning with a powerful earnings report (that strangely failed to wow investors) one week ago, Micron stock has been sliding for six straight sessions.
Shares of the computer memory-maker's most recent trouble began Wednesday, when news broke that Alphabet (GOOG 2.49%) has developed new compression technology that shrinks memory size six times while increasing performance and data recall. Worries that this would reduce demand for Micron's high-bandwidth memory (HBM) chips subtracted 3.4% from Micron's market capitalization yesterday.
The stock is down another 4.2% through 9:50 a.m. ET today.
Image source: Getty Images.
Point, counterpoint
And yet, not everyone on Wall Street is panicking. To the contrary, in a note out this morning, Morgan Stanley thinks the sell-off in Micron stock might actually be giving investors a buying opportunity.
Investors have valid concerns about the durability of demand for HBM Micron, admits the Wall Street analyst. High capital spending by artificial intelligence companies may not last forever. Successful data compression by Google might destroy some HBM demand. And yet, MS argues demand may prove stronger than skeptics think.
Memory is "THE bottleneck" to expanding AI capacity, argues the analyst (employing all-caps to emphasize the point). Moreover, the memory shortages are increasing and customers are pre-paying for HBM deliveries -- indicating that Micron's customers, at least, don't think Google has solved the problem.
NASDAQ: MU
Key Data Points
What it means for Micron
More even than that, though, by pre-paying for HBM and locking up supplies early, Micron's customers may actually be perpetuating and exacerbating the supply deficit, driving prices (and Micron profits) even higher.
Even granting that Micron is a cyclical stock working in a cyclical industry, at a valuation of less than 8x forward earnings, Micron stock is simply too cheap to ignore.
