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Oct 10, 2022

Why Did Micron Choose New York for its $100 Billion Factory?

By:Ryan Sullivan

Why Did Micron Choose New York over Texas?

Micron (MU) recently announced that they intend to invest up to $100 Billion to develop a semiconductor manufacturing plant in upstate New York, in a town called Clay. Once completed, it will be the largest semiconductor manufacturing plant in the history of the United States. 

When you want to build a facility at this scale, you have the luxury of negotiating incentives that you’ll receive from the governments in the state that you want to develop in. This was no exception for Micron, who shopped their project around the United States. New York and Texas have recently made pushes to attract development projects such as Micron’s. This time around, New York made the best offer. 

What are the incentives in New York?

Tax credits are offered in New York for job creation and investment. On top of that, New York has pledged $200 million to develop the infrastructure around the area of the new manufacturing plant. New York also pledged $100 million to benefit the community in the area. Additionally, New York is discussing providing the new facility with reduced cost electricity to power the operation. 

Moreover, Micron will take advantage of the recently passed CHIPS and Science Act, which was passed by the U.S. government. This Act provides funding for projects that work toward developing semiconductor manufacturing in the United States. Micron has said that an investment of this size, to produce a facility in the United States, would not be possible without the assistance of government subsidization.

Why does the United States want more semiconductor manufacturing facilities in the United States? 

The United States is incentivizing the production of semiconductors in the United States for several reasons, one of which includes national security. However, the more immediate problem is supply chain constraints.  

During Covid-19 lockdowns, the supply chain for semiconductors came to a halt around the globe. During that time, many of the technology manufacturers in the United States were unable to deliver enough semiconductors to their manufacturing facilities around the world to produce the products that they sell. Without semiconductors, they cannot do business. 

The hope is, that by manufacturing semiconductors in the United States, additional manufacturing opportunities will develop in the United States. Since many technology companies in the United States produce their products overseas, the incentives to bring semiconductor manufacturing to the United States is a step toward returning those technology manufacturing jobs to the United States. 

Fig. 1: Nine-month price percent change for GLD, SPY, and MU.
Fig. 1: Nine-month price percent change for GLD, SPY, and MU.

How is Micron (MU) stock performing?

Micron is currently trading at $53.40, down 43.13 percent from its opening price of 2022. MU has been in a bear trend since the start of 2022, posting lower lows and lower highs. MU has also had periods of sideways movement in 2022. 

MU recorded its all-time high price this year at $98.45 on January 5th, 2022. Micron approached this price only a couple of times in the past. Once in April of 2021 and July of 2000.  

How does the market feel about MU’s investment? 

We can assume that if Micron’s New York investment news provided new information to the market, the market would have quickly priced in that information as soon as it was available. Based on that understanding, we can look at MU’s price action just after the announcement to determine if the market needed to make an adjustment to price based on the new information. 

Looking at the price action for MU since the beginning of October, we see bullish tendencies, but that price action also tracks fairly well with the market as a whole. We see a small gap up on the 4th, but the follow through was not very strong. 

Based on this recent price action, it is reasonable to assume that the market did not have a big reaction to MU’s investment announcement in New York. Therefore, we can assume that this information was already known to the market prior to the announcement and had been priced in. 

If you want to go long MU now, know that the news about producing semiconductors in New York has already been priced in. 

 

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