Everywhere you look, the signs point to an awful rest of the year for Micron Technology (NASDAQ:MU). After a volatile second half of 2018, investors hoped that things would turn around in 2019. For a while, they did. From the January opener to April’s closing session, MU stock gained nearly 36%. But as you know, that bullishness crumbled shortly thereafter.
Investors have legitimate fears that the worst isn’t over for Micron stock. Indeed, we’re already charting similar performances. In the first half of 2018, MU shares jumped over 26%. But in the back half, the tech firm hemorrhaged more than 40%.
Both in 2018 and in the year-to-date, MU stock confronted the same negative catalyst: the ugly U.S.-China trade war. Politically, both sides are locked into a corner by their respective constituents. President Trump gravely insulted his Chinese counterparts; thus, China can’t afford to look weak or even acquiescent.
But Trump has a contentious election to win in 2020. With Democrats fronting an eclectic blend of opposing voices, Trump can’t afford conceding any fight, especially to the Chinese. And that just puts Micron stock in a serious bind because tensions will probably escalate for the foreseeable future.
Not only that, the trade war imposes specific and direct challenges to Micron stock. For the first half of this year, sales to Chinese consumer-tech firm Huawei represented 13% of Micron’s total revenue. The jury’s still out on the impact on those sales from that “minor inconvenience” presented by the U.S. Department of Commerce labeling the firm a national security threat.
Unfortunately, MU stock already suffered from volatile memory-chip pricing dynamics. No longer able to sell to a major partner, the situation looks bleak for the semiconductor specialist.
Longer-term Benefit for MU Stock
Here, I’m going to take a pause and give you the obvious protective idea: if you’re a serious stakeholder in Micron stock, it makes sense to shed some exposure. MU is exposed to every branch, every nuance of the trade war. In fact, the trade war was sparked by an espionage incident at Micron.
The smart investor assumes turbulence, if not outright volatility. I would be quite surprised if MU stock keeps paddling and avoids serious technical pain. Plus, the equity doesn’t pay a dividend. Under severe sector pressure, there’s almost no point in holding your money hostage.
That said, if MU stock takes the predicted tumble, I’m interested in buying shares on discount.
Primarily, I’ve learned to avoid getting too hysterical about the ebb and flow of semiconductor stocks. Right now, the hysteria focuses on the memory chip supply glut. But next year, or some time in the future, the situation will reverse: Micron, Intel (NASDAQ:INTC), Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) will jump on “unprecedented” demand.
What sparks such a change? Nothing really, except perhaps bad timing. Here’s the reality: relevant tech segments like data centers may currently suffer, but their demand will eventually rise. No matter how bad the economy gets, innovators will innovate: it’s just that simple.
Second and more importantly, Micron stock benefits longer term from the Trump administration’s attack on Huawei. It’s time to get real: China’s aggressive pursuit of technology has led them to commit shocking acts of fraud and intellectual theft.
I know this isn’t politically correct. But please read The New York Times’ description of the Chinese espionage against MU.
The act is straight out of a Hollywood thriller. And thanks to Trump, that nonsense ends now.
Calling Out China was Necessary for Micron Stock and Tech
People don’t like the trade war because it’s detrimental to their jobs and as a result, their lives. Certainly, it seems that President Trump could have handled a delicate situation better.
But as I sit here now, having read the almost lurid details of Chinese high-tech espionage, the conclusion is clear: Trump had no choice but to call out China’s business malpractices.
Because, really, what is the alternative? Let the Chinese suck our technological acumen dry? At some point, we must recognize that our trading platform with China was never fair because frankly, they’ve been lying and cheating this whole time.
Sure, an extended trade war will hurt both our economies. We may even fall into a recession. But finally, the U.S. government signaled that it will impose harsh consequences for intellectual and technological theft. Thus, the Chinese will think twice about future acts of corporate espionage. And that’s great news for MU stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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