Investors may have just witnessed the canary in the semiconductor coal mine pass by. Micron (MU), while not delivering the spectacular results of Nvidia, has been a great stock, with its stock doubling last year and poised to rise by more than 50% in 2024. The AI boom has driven memory chips higher, making these chips a more important component for artificial intelligence accelerators. But the unrealistic hurdles currently set for AI earnings reports have sent Micron down more than 7% in heavy trading. We want to express a short-term bearish view on Micron, as we believe there will be further profit-taking in the third quarter. Micron is one of the largest semiconductor companies in the world, specializing in high-bandwidth memory and storage chips. But its market cap of about $150 billion is a fraction of Nvidia’s $3 trillion. Micron’s stock price fell Thursday afternoon, despite receiving multiple price target hikes from various brokerages. JP Morgan is one of many that are bullish on Micron, calling the company one of its top picks in the semiconductor space. The reason Micron’s stock price plummeted is due to the company announcing plans to increase capital expenditures (CapEx) in the coming fiscal year as the semiconductor giant expects and prepares for significant revenue growth. In fiscal 2024, Micron spent $8 billion on CapEx. Micron’s guidance suggests that CapEx in 2025 will be around $13 billion, an increase of 62.5%. I believe this was the catalyst for profit taking. I am relying on technical factors to guide the construction of this trade as I believe there will be more volatility in the semiconductor space in the coming months as trade rebalancing and profit taking is inevitable. Buying a Put Spread Bought a $132 put expiring 7/26 for $5.25 Sold a $120 put expiring 7/26 for $1.35 This put spread was executed as a debit spread costing $3.90 per spread when MU was trading at around $133.75. This defines the potential loss on this trade if this earnings report was just a blip in this amazing bull market on all fronts for AI and Micron. If I am correct about the semiconductor specific profit taking, this trade would fall at a maximum profit of $8.10 per spread (this maximum profit is the cost of the put spread minus the $12 difference in the put strike price). Disclosure: (long put spread and MU indirectly through ownership of SOXX Chip ETF) All opinions expressed by CNBC Pro contributors are the contributors’ own opinions and do not necessarily reflect the opinions of CNBC, NBC UNIVERSAL, their parent or affiliated companies, and may have been previously distributed by the contributor on television, radio, the Internet or other media. The above content is subject to our Terms of Use and Privacy Policy. This content is provided for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to purchase any securities or other financial assets. The content is general in nature and does not reflect any individual’s unique personal circumstances. The content above may not be suitable for your particular situation. You should strongly consider seeking advice from your own financial or investment advisor before making any financial decisions. Click here for full disclaimer.
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