Why Micron Technology, Inc. Gained 10.6% in October

MU data by YCharts

What: Shares of Micron Technology gained 10.6% in October, according to data from S&P Capital IQ. Mid-month, the memory chip maker's stock had risen as much as 28%, but the joy didn't last.

So what: Micron released its fourth-quarter results on Oct. 1, crushing analysts' targets, but setting its revenue guidance kind of low for the coming quarter.

Analysts followed up with generally positive reviews, noting that the guidance could have been much worse.

Trading volumes exploded, and so did Micron's share price. Five days later, the stock had gained 27%.

Now what: Those strong gains faded in a hurry three weeks later, when Intel said it would spend $4.5 billion to convert a China-based processor plant into a next-generation facility for making NAND Flash memory chips.

Since Micron is a major supplier of such chips, its stock plunged on this news. Beyond just introducing a new competitor into the heavily consolidated memory market, Intel's investment could take away some of the control Micron currently holds over market prices on memory chips. The rest of this industry is largely nested under the wings of technology conglomerates that can afford to treat memory chips as a hobby.

Then again, Intel happens to be a longtime Micron partner, with a joint venture churning out high-end memory chips since 2005. Micron has already stated that it might end up consuming some of Intel's Chinese manufacturing capacity down the road. In other words, the mid-October plunge just may have been a knee-jerk overreaction to news that actually wasn't terrible for Micron at all. What would Intel gain from undermining a close partner, when it could use this Chinese factory to strengthen those ties instead?

Keep in mind that Intel's holdings in the so-called IM Flash Technologies partnership with Micron increased in value by 10% last year, and it grew by another 22% through the first three months of 2015. It's a fruitful and profitable joint venture, and both parties should want to keep it that way.

So Micron ended up just barely beating the market in October, but the stock was down 45% year-to-date even at October's very highest peaks. Investors are wary of a memory market that has ambushed investors with devastating price wars many times before. The urge to stay away from sudden Micron plunges has created exactly such a decline on its own.

Micron shares ended October's roller coaster selling for a rock-bottom 6.8 times trailing earnings. If the price wars remain just a threat and not a reality, Micron investors buying in at these low prices could see some fantastic returns over time.

The article Why Micron Technology, Inc. Gained 10.6% in October originally appeared on Fool.com.

Anders Bylund owns shares of Intel and Micron Technology. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.