Micron stock analysis as the AI Bubble Index sinks to a four-month low 

Micron stock has remained in a narrow range this week, continuing a trend that has been going on in the past few weeks. MU was trading at $956, down by 25% from its highest point this year. This article explores what to expect as the AI Bubble Index slips and its full-year earnings loom.

AI Bubble Index has dropped to a four-month low

The ongoing Micron stock weakness has coincided with that of other companies in the AI industry, including its top competitors like Samsung Electronics and SK Hynix.

Other top companies like Nvidia, AMD, and Intel have all pulled back in this period, even after publishing strong financial results, and the ongoing optimism that the AI business will continue doing well.

The main reason for this is the ongoing fear that the AI industry is in a bubble that will burst soon. Top pros, including popular analysts like Michael Burry and Ray Dalio, have all warned that the bubble will burst, drawing parallels with the dot-com bubble.

On the positive side, the closely watched AI Bubble Index has slumped to 48.4, the lowest level since April this year. This is an important metric that looks at several important gauges like valuations, market concentration, momentum and technicals, sentiment and hype, and systemic risk. 

For example, traditional metrics suggest that many companies in the AI industry are not all that overvalued. A good example of this is Micron whose forward price-to-earnings ratio has dropped to 12.7, much lower than the sector average of 22.40. It remains much lower than the five-year average of 74.

Micron earnings are nearing

A crucial catalyst that may drive the MU stock higher is its upcoming earnings, which will come out on September 30th. These numbers will provide more hints on whether its revenue and margins are growing. 

All signs are that the business is doing well. For example, earnings reports by top companies like Dell, HP Enterprise, and Nvidia suggest that spending is not slowing. 

The most recent results showed that its revenue growth continued growing in the third quarter. Its revenue jumped by 346% to $41.5 billion, its best performance ever.

The management hinted that the third quarter revenue will keep growing, with the fourth quarter revenue hitting $50 billion in the fourth quarter. If this happens, it will bring its annual $129.7 billion followed by $241 billion next year. Chances are that the revenue will come out better than expected.

This growth, and its profitability explain why many analysts believe that it has more upside, with the consensus price target rising to $1,295. Some of the most bullish analysts are from companies like DA Davidson, Wolfe Research, Raymond James, and Susquehanna.

Micron stock price technical analysis 

MU stock chart | Source: TradingView

The daily timeframe chart shows that the MU stock price bounced back after bottoming at $737 on July 29. It has now moved to $956, which is slightly above the 50-day Exponential Moving Average (EMA).

The stock has formed an inverted head-and-shoulders pattern, while the two lines of the Personal Consumption Expenditure (PCE) have crossed the zero line. Therefore, the most likely scenario is that the stock rebounds and hits the key resistance level of $1,250.