Micron's Overbought Surge: Ride the AI Wave or Brace for a Correction?

Micron Technology (MU) has surged 36% month-to-date, pushing its 14-day RSI to overbought levels (83), yet its fundamentals remain bulletproof: record $9.3B in AI/DRAM revenue, $1.9B free cash flow, and a robust HBM4 pipeline. The question is clear: Is this a short-term correction waiting to happen, or a buying opportunity in a megatrend?

Technical Overextension: A Volatile Near-Term Outlook

MU's technicals are screaming caution. The RSI has breached 70 (overbought territory) multiple times this quarter, peaking at 93 by mid-June, signaling excessive bullish momentum. While the stock trades above its 50-day ($118.97) and 200-day ($103.90) moving averages, a divergence between price and RSI could trigger a pullback.

• Key Resistance: $137 (the next major upside target) faces stiff institutional selling pressure.
• Support Levels: The $114–$111 range is critical. A breach here could erase gains made since April.

Analysts warn that short-term volatility is inevitable. Historical backtests reveal that when MU's RSI exceeds 70, holding for 10 days resulted in an average decline of 7.82%, with a worst-case drawdown of 40.86%. This underscores the risk of prolonged overbought conditions. The Stochastic oscillator, already in overbought territory, suggests MU may face a retracement to the $123.34 Fibonacci pivot point before resuming its climb.

Fundamental Strength: The AI Tailwind Is Real

Beneath the technical noise lies a company at the epicenter of the AI boom. Micron's Q3 results highlighted:
1. AI/DRAM Revenue: Surged to $9.3B (+37% YoY), fueled by HBM demand from four major cloud clients (e.g., AWS, Azure).
2. Free Cash Flow: Soared to $1.9B, underpinning debt reduction and R&D investments.
3. Q4 Guidance: Revenue guidance of $10.4B–$11.0B reflects sustained demand, with HBM4 shipments expected by early 2026.

The company's HBM4 pipeline is a game-changer. This next-gen memory, with 40% higher bandwidth than HBM3, is already in testing with top-tier AI labs. Micron's dominance in this space—securing 4 major clients—positions it to capture 70% of the $15B HBM market by 2027.

Investment Thesis: Hold Through the Dip, Target $136

The contradiction between technical overboughtness and fundamental strength creates a tactical dilemma. Here's how to navigate it:

Short-Term (1–3 Months)

• Risk Management: Use the $114 support as a stop-loss. A breach here signals a deeper correction.
• Entry Point: Aim to accumulate shares on dips to $123–$125, where the RSI may drop below 70. Historical backtests suggest this is a critical threshold, as overbought conditions have historically led to average declines of 7.82% within 10 days—a warning to avoid aggressive bets at current levels.

Long-Term (6–12 Months)

• Target: The $136 price tag (78.6% retracement of the 2023 low to 2024 high) aligns with HBM4 ramp-up and AI data center spending.
• Catalysts: Q4 earnings, HBM4 commercialization, and potential partnerships with emerging AI startups.

Conclusion: A Volatile Journey, but Worth the Ride

Micron's overbought technicals suggest near-term turbulence, but its AI-driven fundamentals are unassailable. Investors should:
1. Hold positions above $114, using dips to average down—historical data shows that pullbacks below $123 often create buying opportunities.
2. Avoid overleveraging at current prices—wait for the RSI to normalize below 70, as overbought conditions have historically led to sharp corrections.
3. Monitor HBM4 milestones, as these will be the key drivers of sustained growth.

In the AI arms race, MU is not just a chipmaker—it's the memory backbone of the future. While volatility is inevitable, the long-term trajectory remains clear: $136 is achievable by year-end, provided Micron's HBM pipeline stays on track.

Final Take: Brace for corrections, but don't let short-term noise distract from the megatrend. MU is a buy on dips, with $114 as the floor and $136 as the ceiling.