Once-hot Micron (MU) is proving vulnerable to a recent uptick in volatility weighing on the artificial intelligence (AI) trade. As of late Wednesday, shares of the memory chipmaker were off 16.55% over the past week and following a recent flirtation with $1,100, the stock is clinging to $900.
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The stock’s retrenchment has been a drag on the Direxion’s Daily MU Bull 2X Shares (MUU), which attempts to deliver 200% of the daily performance of Micron shares. But sentiment indicates that this technology stock may be due for a rebound. That means that the geared MUU is worth examining over the near-term.
In fact, risk-tolerant, event-driven traders have an ideal opportunity to tap into MUU, because Micron delivers quarterly results on June 24. Given the company’s dominant perch in the memory chip arena, investors will widely monitor the earnings reports this month. Provided they find the guidance acceptable, the report could catalyze short-term gains for MUU.
More Reasons to Mull MUU
With memory chip demand far outpacing supply, Micron’s recent weakness could be an overreaction. If true, that could augur well for MUU’s rebound fortunes.
“The tech sector is coming under pressure from a combination of higher rate expectations, which lowers the current value of more distant profits, and anxiety over elevated valuations and uncertainties over the monetization of AI,” observed Mark Haefele, chief investment officer at UBS Global Wealth Management, in a recent report.
Another reason to examine Micron on this pullback: Unlike some other AI names, the stock isn’t richly valued. Valuation is a longer-ranging factor and not necessarily relevant with leveraged ETFs. That said, if more market participants step into Micron due to compelling valuations, that buying pressure would benefit MUU.
“Micron and a small number of other chip companies remain undervalued due to their lasting earnings power. Investors are likely to be reminded of that when Micron reports its fiscal third-quarter earnings on June 24. It is expected to report adjusted earnings of $19.43 a share, up from $1.71 for the same period a year earlier,” reported Adam Clark for Barron’s.
As for opportunities to deploy MUU, those could be plentiful for the next 12 months or more. Indeed, constricted memory chip supply won’t abate anytime soon.
“Most analysts believe Micron’s explosive growth is set to last through at least 2027,” reported Barron’s.
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