On Thursday, Micron Technology Inc. (NASDAQ:MU) shares plunged more than 7% to trade at a new year low of about $69.63 after Morgan Stanley analysts downgraded from buy to neutral. The MU stock is now down more than 15% from last week’s closing price as analysts continue to advise caution amid the memory chip downturn.
Morgan Stanley wrote in a note to investors saying:
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[From a pricing perspective] the rate of change is approaching peak as supply is catching up with demand.
The analyst believes memory chips demand is entering a descending cycle, and DRAM could experience a more extended period in the cycle than NAND and NDR chips. DRAM accounted for $5.4 billion of Micron’s fiscal Q3 revenue of $7.4 billion reported in June. That is nearly 73% of the company’s total turnover.
Therefore, if DRAM memory chips are stuck in the late cycle, the stock price could suffer significantly, as Morgan Stanley analysts predict.
Should you buy or sell Micron stock now?
From a valuation perspective, Micron Technology shares trade at an attractive forward P/E ratio of just 6.56. In addition, analysts expect Micron earnings per share to grow at an average annual rate of 63.56% over the next five years, making the stock compelling to growth investors.
However, with earnings per share falling by nearly 57%, investors will need to be patient ahead of its exciting growth story. Therefore, MU shares appeal to long-term investors, but short-term buyers may try to find alternatives.
Technical overview: Micron Technology stock price forecast for Q3 2021
Technically, Micron shares seem to be trading within a descending channel formation in the intraday chart. The stock price recently pulled back to trade closer to overbought conditions after Morgan Stanley’s downgrade.
However, the downward momentum appears to be significant to continue to the foreseeable future amid a lack of catalysts for a rebound. Therefore, investors can target extended short-term declines at approximately $67.21 or lower at $64.31. The resistance levels are $72.22 and $75.71.
Bottom line: the case for selling Micron shares now
Although Micron technology stock price has declined significantly recently, the downward movement seems far from over after Thursday’s downgrade. Therefore, it may be best to wait for the stock to fall further to the support levels before buying or open a short position to profit on the downtrend.
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