Investors may have just seen the canary in the semiconductor coal mine fly by. Although Micron (MU) has not had Nvidia’s meteoric performance, it has been a stellar stock, doubling in the last year and up over 50% in 2024. The AI boom has buoyed memory chips higher as these chips have become a more important component for artificial intelligence accelerators. However, the possibly unrealistic bar now being set for AI earnings reports saw Micron drop more than 7% on high volume. I want to express a short-term bearish view in Micron as I believe further profit-taking will occur in the third quarter. Micron is one of the largest semiconductor companies in the world, specializing in high-bandwidth memory and storage chips. Yet it is a fraction of the size of $3 trillion Nvidia at nearly $150 billion in market cap. Shares of Micron fell on Thursday afternoon despite receiving several price targets increases from a variety of brokerage firms. JPMorgan is one of the many bullish firms on Micron, calling the company one of its top picks for the semiconductor space. The reason that Micron saw a precipitous drop in stock price was due to the just revealed plans to increase their capital expenditures (CapEx) in the next fiscal year as the semiconductor major is expecting and preparing for substantial growth in revenue. In fiscal 2024, Micron spent $8 billion in CapEx. Micron’s guidance insinuated that 2025 CapEx will be roughly $13B, that would be a 62.5% increase. That was the catalyst in my opinion for the profit-taking. The trade As I believe there will be an increase of volatility in the months ahead inside for the semiconductor space as rebalancing and profit-taking are inevitable, I rely upon the technicals to guide this trade construction. Buying a put spread Bought the $132 July 26 th expiry put for $5.25 Sold the $120 July 26 th expiry Put for $1.35 This put spread was executed when MU was trading roughly $133.75 as a debit spread that will cost an investor $3.90 per one spread I am defining the potential loss on this trade in the event that this earnings report was just a blip on this remarkable bullish run in any and everything AI and Micron continues to march higher. If I am correct about profit-taking specific to semiconductors, this trade will fill out to the downside with a maximum profit of $8.10 per spread (that max profit is simply the cost of the put spread less the $12 difference in strike prices of the puts). DISCLOSURES: (Long put spread and MU indirectly through ownership of SOXX chip ETF) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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