Shares of computer memory maker Micron Technology (NASDAQ:MU) tumbled to the tune of 3.6% on Tuesday, largely in response to a dire forecast for memory chip prices.
Technology market research and analytics outfit TrendForce made the call, publishing a report on Tuesday calling for a 3% to 8% dip in DRAM (dynamic random access memory) computer memory pricing during the fourth quarter compared to the third quarter’s typical prices. The company concurrently predicts a 17.9% increase in the industry’s total supply of DRAM memory in 2022, which should be more than enough to meet demand. TrendForce analysts already see a slowdown in the amount of DRAM being bought by purchasing managers of companies building computers and servers.
TrendForce’s outlook was neither novel nor surprising.
Despite the world’s current semiconductor shortage, a memory chip glut has been building for some time due to recent and not-so-recent efforts to ramp up production capacity. Availability was already adequate, and the need for memory chips may be increasingly stifled by crimped output of other technological products. Indeed, Micron shares have been sliding lower since April, at least partially in anticipation of a weakening DRAM market. Tuesday’s sell-off only extends this downtrend, driving Micron shares to multi-month low. TrendForce doesn’t foresee relief until at least after 2022, superficially suggesting more downside from Micron shares are in store.
It wouldn’t be outrageous, however, to start stepping into Micron based on a plausible recovery from the impending glut coming out of 2022. Valued at less than six times next year’s estimated earnings, the worst-case scenario is already more than priced in. It’s just going to require plenty of patience to shrug off all the prospective volatility in the cards for the next several months as the market makes educated guesses about when the supply/demand dynamics will take a turn for the better again.
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.
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