Key Points
Michael Burry believes that during the next two years, the memory shortage will end.
Burry believes there will be another down cycle coming.
Micron Technology's stock could be highly vulnerable to a sizeable correction if investors no longer expect a shortage to last until the end of the decade.
Michael Burry is a well-known investor who predicted the subprime mortgage crisis nearly 20 years ago, and he is not a big believer that the memory shortage is going to last until the end of the decade. That's unlike what many tech investors believe, particularly the ones who remain bullish on Micron Technology (NASDAQ:MU), despite the fact that it has gone through boom-and-bust periods in the past.
This time is different, or at least, that's what bullish investors want to believe. Burry isn't one of them, and instead, he sees trouble ahead. If he's right, Micron's stock could be vulnerable to a steep sell-off. Here's when Burry thinks the party will end for high-flying memory stocks.
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Burry believes the bubble could burst for memory stocks within a couple of years
Shortages inevitably come to an end; it's really a matter of when. In recent years, a global semiconductor shortage disrupted many areas of tech. But as demand slowed, the shortage ended. With memory products, the same is likely to happen, but many investors believe that artificial intelligence (AI) has changed things dramatically, and that won't be the case this time around.
Burry isn't buying that and predicts that it may not be too long before the bubble bursts for memory products. "Over the next two years this shortage will blow off as production catches up, and memory will have a down cycle again." And Burry isn't the only doubter, either, as Acer's CEO Jason Chen points to rising capacity in China as proof that conditions have eased within the industry and why a shortage may not last until the end of the decade, as some expect it to.
Micron investors should tread carefully with the stock
If the memory shortage is exaggerated and it's going to come to an end within the next couple of years, it could spell disaster for Micron's stock, which has soared more than 1,300% in five years. It's been soaring largely due to massive revenue and profit growth, combined with the expectation that demand won't slow down anytime soon, due to AI.
However, that's a risky assumption to make, because with the stock now being among the most valuable in the world, with a market cap north of $1 trillion, any crack in the growth story could trigger a massive sell-off and tailspin for the tech stock.
Investors who own Micron may want to consider taking some profits. The stock is down 16% from the high it reached earlier in the year, as investors appear to be having some second thoughts about whether the memory stock may have peaked. While it's been doing exceptionally well, there's plenty of downside risk for Micron given how hot its rally has been.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.