Why Micron Technology, Inc. Rose 20% in August

By Markets Fool.com

Image source: Micron Technology.

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What happened

Shares of Micron Technology (NASDAQ: MU) gained 20% in August 2016, according to data from S&P Global Market Intelligence. Analysts uncovered signs of stabilizing or even increasing prices in the global market for memory chips, followed by a plethora of upgrades.

So what

Several analyst firms reported stable spot pricing and rising supply contract prices on memory chips, which is always welcome news to investors in the sector. Computing giant HP(NYSE: HPQ) added fuel to the fire in its third-quarter earnings call, when HP CEO Dion Weisler noted that he is seeing supply shortages on memory chips.

Under a steady barrage of these positive comments, Micron shares simply kept climbing all month long.

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MU data by YCharts.

Now what

Micron shares have bounced back from a deep trough. Share prices currently stand 80% above 52-week lows set in May, but the stock could also double from here and still not reach the heady heights of late 2014.

Stable product pricing is exactly what Micron needs right now. Trailing revenue has fallen 25% over the last six quarters, and the company is looking back at $2.4 billion in negative trailing free cash flows. It's unclear how much of the recent pricing strength comes from sustainable market trends and how much depends on temporary manufacturing problems, so you may not want to back up the truck to Micron's buy-in window just yet.

That being said, I'm holding on to my own Micron shares. This is a long-term bet on a leader in the consolidating memory market, not a myopic play for short-term gains.

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Anders Bylund owns shares of Micron Technology. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days.

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