Micron Technology (NASDAQ:MU) inventory continues to journey excessive, a lot in order that Micron lately got here inside $1 per share of its all-time excessive set again in the 2000 dot-com bubble. This optimism has stemmed from a chip scarcity so extreme that it has idled manufacturing in quite a few industries. However, chip shortages not often final, and a hyperlink to cryptocurrencies may alter the worth proposition of Micron inventory.
Chip market risks
Admittedly, Micron stays firmly positioned in a reminiscence market as extra merchandise require such chips. Many see the corporate’s state of affairs as an enormous motive why you need to be shopping for Micron.
The scarcity may significantly profit Micron in the DRAM reminiscence market, the place South Korean chipmakers Samsung and SK Hynix are its solely opponents. DRAM made up about 68% of Micron’s income in 2020. Additionally, the corporate claimed about 23% of the worldwide DRAM market, in response to PatternForce.
Image supply: Getty Images.
Still, buyers have to recollect the notoriously cyclical nature of the reminiscence chip market. One specific concern is the impact of cryptocurrency on the chip market.
According to The Financial Times, the mounted prices concerned with mining Bitcoin (CRYPTO:BTC) stand at about $5,000. Bitcoin trades at a bit of greater than $43,000 as of the time of this writing, leaving miners keen to pay prime greenback for chips.
However, the adversarial results of the mining course of on the atmosphere has turned some buyers towards crypto. One former Bitcoin bull, Tesla CEO Elon Musk, suspended the acceptance of Bitcoin resulting from power consumption issues associated to the mining course of.
Investors can also recall that when the final main crash in Bitcoin occurred in 2018, the reminiscence chip market turned from a scarcity to a surplus shortly. As a end result, Micron earned 55% much less in fiscal 2019 (which started in September 2018) in comparison with the earlier 12 months.
Memory costs and Micron inventory
This creates an issue for Micron as a result of inventory’s notoriously cyclical nature. In the Financial Times interview, CK Chung of Nomura Holdings estimated that the chip scarcity ought to final by means of the top of the 12 months. Assuming Chung’s forecast proves right, it may cut back income and income for Micron in 2022. That could clarify why Micron’s final earnings launch didn’t present steerage past the upcoming quarter.
Also, crypto mining has grow to be a big affect on Micron inventory. During the 2018 cryptocurrency crash, Micron inventory misplaced greater than half its worth from June to December as reminiscence chip demand crashed.
Moreover, Micron inventory has a historical past of huge declines going again to the mid-Nineties that resulted from reminiscence chip gluts. One reminiscence chip surplus took Micron inventory to a low of round $2.60 per share in March 2009.
With reminiscence chips now going into smartphones, synthetic intelligence (AI), and Internet of Things (IoT) functions, chip demand has skilled a everlasting improve. For this motive, Micron will possible not grow to be a penny inventory once more.
Micron inventory sells for round $78 per share as of the time of this writing, roughly 20% beneath its 2021 excessive of $96.96 per share. Moreover, Bitcoin’s present worth of about $50,000 comes in round 20% beneath the current excessive of simply over $63,700.
MU information by YCharts
Admittedly, that’s possible not sufficient of a worth decline to discourage crypto miners. Nonetheless, Bitcoin has a historical past of worth declines of 80% or extra. If one other such drop has begun, it may simply strain Micron inventory.
Micron inventory in one 12 months
Given the chip scarcity, Micron inventory appears like a purchase. However, Micron has traded close to its all-time highs lately has traditionally acted as a proxy for reminiscence costs. In current years, that demand has developed an more and more sturdy hyperlink to the mining of Bitcoin and different cryptocurrencies.
Moreover, a outstanding chip analyst believes the chip scarcity can have ended by the brand new 12 months. That may bode poorly for this semiconductor inventory in 2022 if extra accessible chips result in decrease costs.
This article represents the opinion of the author, who could disagree with the “official” suggestion place of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one in every of our personal — helps us all suppose critically about investing and make choices that assist us grow to be smarter, happier, and richer.
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