Micron stock price flashes an alarming pattern ahead of earnings

Micron stock price tanked in the past few days, erasing some of the gains made earlier this month, as investors reacted to the recent Oracle and Broadcom earnings. It dropped to a low of $240, down sharply from the year-to-date high of $264.46. It remains up by 152% from where it started the year.

Micron to publish first quarter earnings 

Micron stock price has been in a strong uptrend this year, helped by its strong revenue growth amid the ongoing boom in the artificial intelligence (AI) industry.

The company’s Dynamic Random Access Memory (DRAM), NAND flash memory, and solid-state storage products has jumped as the ongoing data center build-up has accelerated. 

This demand has pushed the company to undergo some major changes. In a recent statement, the management noted that it would exit its consumer business to focus on the data center businesses. 

That move led to accusations that the company had abandoned gamers and other loyal clients. Also, it put it a risk of a slowdown if the AI boom starts to slow. 

Looking ahead, the next key catalyst to watch will be the upcountry financial results, which will provide more color on its growth trajectory.

The most recent results showed that Micron’s business was doing well, with its volume rising from $7.75 billion in the fourth quarter last year to $11.32 billion.

This growth translated to an annual revenue of over $37 billion, much higher than the $25.1 billion in the previous year. This growth made it one of the fastest-growing companies in the tech industry.

Most of its revenue came from its DRAM business, which brought in $9 billion, with its revenue rising by 27% QoQ. Similarly, the NAND business made $2.3 billion, up by about 20% from the same period last year.

Analysts estimates and valuation 

Analysts are optimistic that the company’s growth accelerated in the first quarter of the year. The Average estimate among analysts is that the company’s revenue rose by 47% in the last quarter to $12.8 billion. Its earnings-per-share is expected to come in at $3.91, up from the $1.79 it made in the same period last year.

Micron has a long history of beating analyst estimates, meaning that its business will likely report stronger results than expected.

Analysts also expect that its second-quarter revenue guidance will be $14 billion, up by 74% from the same period last year. Its EPS will be $4.4, up sharply from the $1.56 it made in the same period last year.

These results will come out a week after Oracle and Broadcom stocks plunged despite publishing its financial results. Oracle’s stock price plunged amid concerns about its debt and negative cash flow. There are concerns that OpenAI may opt to slow its infrastructure build-up.

One key aspect about Micron is that its stock has become highly undervalued, with its forward price-to-earnings ratio of 13.25 being much lower than the sector median of 24. The five-year PE average is 75. 

Micron’s forward EV to EBITDA multiple is 7.35, much lower than the sector median of 15.27. Additionally, the company’s rule-of-40 multiple stands at 61. This estimate is calculated by adding its revenue growth of 40% and its net income margin of 21%.

Micron stock price technical analysis 

The daily timeframe chart shows that the MU stock price surged to a record high of $264.40 last week as the bull run accelerated. It then suffered a harsh reversal after the Broadcom and Oracle earnings.

The stock has formed a double-top pattern at $258.80 and a neckline at $192.73, its lowest level on November 21. 

Meanwhile, the MACD and the Relative Strength Index (RSI) have pulled back from their highest levels this year, forming a bearish divergence pattern.

Therefore, the stock will likely have a strong bearish breakout, potentially to the key support level at $200. However, a move above the year-to-date high of $264.40 will invalidate the bearish outlook.

The post Micron stock price flashes an alarming pattern ahead of earnings appeared first on Invezz