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Shares of memory chipmaker Micron Technology (NASDAQ:MU) have swung hard this fall. From Oct. 1 through Nov. 11, the stock closed up or down 5% or more on 10 of the 30 trading days, or a third of the time.
By comparison, the worst day for the S&P 500 in that span was a loss of about 4% on Nov. 5. Micron fell 17.5% the same day, then rose about 24% in the next four sessions, including a 12% gain on Nov. 11. As I write, shares are near $811, off nearly a quarter since the end of September.
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I still think Micron is worth owning. But for a stock that moves like this, I'd say that how much of it to own counts about as much as when to buy it.
Six of the 10 big swings were drops. They happened on Oct. 16, Oct. 22, Oct. 30, Nov. 2, Nov. 4, and Nov. 5. The four gains came on Oct. 28, Nov. 6, Nov. 9, and Nov. 11.
Even Nvidia, arguably the best-known artificial intelligence chip stock, saw just two such days.
And the big days have bunched together. Eight of Micron's 10 were in the 11 trading days from Oct. 28 through Nov. 11.
Over the five trading days ending Nov. 5, Micron shares dropped about 30%, from around $934 to $656.
For a $100,000 portfolio with 10% in Micron, that $10,000 stake would have shrunk to about $7,000 in a week, a loss of about 3% for the whole portfolio. At a 5% weight, the hit would have been closer to 1.5%. At 25%, it would have been about 7.4%.
A week also isn't the worst case. Micron stock fell by about 54% from its closing high in May 2018 to its lowest close that December, and by about 50% from January to September 2022. This year, it dropped about 46% between its June 25 record close of $1,213.56 and its Nov. 5 close -- even while the company's profits kept rising.
I'd size Micron for the risk that it loses half its value again.
Showing how far the memory boom has gone, fiscal 2026's fourth quarter (the period ended Sept. 3, 2026) saw revenue of $54.2 billion, up around 380% year over year and 31% from the quarter before. Net income and earnings per share both grew more than elevenfold year over year.
Micron's non-GAAP (adjusted) gross margin climbed to 87%, up from 85% for fiscal Q3 and 46% a year earlier. And management's guidance for fiscal Q1 calls for revenue of around $61.5 billion and an adjusted gross margin of about 86%.
In other words, sales are still growing, but more slowly. The guide implies around 13% growth from fiscal Q4, down from 31%, and the gross margin has stopped widening.
With margins so high, the stock can swing sharply on every new hint about where memory prices head next. Of course, these prices have fallen fast before when supply caught up with demand.
Micron trades at around 4.6 times the earnings per share analysts expect for fiscal 2027, a price I think already allows for a steep drop in profits. It's the top reason I'd still own it. But it also means the stock likely trades on guesses about how long the boom lasts, and those can shift week to week.
My rule for Micron is to size it so a 50% drop would cost no more than about 2.5% of a portfolio. For a diversified investor, this comes out to roughly 5% of the portfolio at most.
It's also worth counting what index fund owners already hold. Micron made up about 1.3% of the State Street SPDR S&P 500 ETF Trust as of Nov. 10, so anybody with a big chunk of their money in an S&P 500 fund already owns some Micron.
I'd also build the position in stages over several months instead of all at once. When a stock can lose more than 17% in one day, a single buy is mainly a bet on timing.
Sure, a 5% position limits how much a strong Micron rally can do for a portfolio. But if the stock doubled, that stake would still add around 5% to the total, while a repeat of 2018's drop would cost under 3%. At that size, I'd be comfortable holding Micron through another week like the one that ended Nov. 5.With all of this said, position sizing is ultimately a personal decision. So think through your own approach carefully.
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Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology and Nvidia. The Motley Fool has a disclosure policy.
Micron Stock Has Moved 5% or More on a Third of Its Trading Days Since October. Here's How Much of It I'd Own. was originally published by The Motley Fool
