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Russian (RU) (Bloomberg) -- Micron Technology Inc. will probably become the latest chipmaker to assure investors that demand for AI-related gear is still strong. Like many peers, it may also admit that other staple areas of demand such as PCs and smartphones remain in the doldrums.
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The company is due to report after market close, and analysts expect strong growth related to its high-bandwidth memory chips, used in artificial intelligence data processing. Positive commentary on AI demand could reinvigorate the AI chip trade, which stalled after mixed reports from Broadcom Inc. and Nvidia Corp.
Their forecasts disappointed demanding investors, similar to the reaction to Micron’s last update three months ago. Revenue growth exceeded 80%, but the outlook underwhelmed a market looking for a bigger boost from AI. After dropping nearly 40% from a June peak and underperforming other chipmakers this year, Micron’s shares now scan as potentially among the biggest bargains in the sector.
“Micron was a victim of high expectations last quarter, but the stock has come down quite a bit since then, which means it could be a beneficiary of low expectations by now,” said Christian Fromhertz, chief executive officer of Tribeca Trade Group. “It will have to say something positive to break above its overhead resistance, but it seems like people think it’s worth a shot at these levels.”
Fromhertz said a positive report could take the stock, which last closed at $94, past $100 again, possibly toward its 200-day moving average above $105. However, falling below recent support near $86 would be a bearish signal, he said.
Shares were little changed on Wednesday.
There are signs of growing bullishness around Micron in the options market. The ratio of Micron put to call open interest is half of what it was a year ago. Near-term bullish positions, especially, dwarf bearish ones, with large holdings in $100 calls expiring two days after earnings, and even larger positions in $95 and $155 calls.
October-expiry options are the most bullish since late July, before volatility shocks early the following month hastened a rotation away from tech stocks.
Citigroup Inc. predicts Micron shares will remain weak until pricing trends for DRAM memory chips reverse, something it expects will happen within three to six months. While it has a buy rating — as do more than 90% of analysts overall — analyst Christopher Danely noted the weakness in near-term sentiment.
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