The stocks of Western Digital and Micron have been dragging on the semiconductor space, logging double-digit declines since their early 2018 highs, so CNBC's Jim Cramer felt he needed to investigate the weakness.
"The semiconductor space is important," the "Mad Money" host said on Wednesday. "Chips are in nearly everything these days and they need to be ordered early in the production process, so a downturn in the semis is often a leading indicator for the broader economy."
Western Digital, formerly a pure play on hard drives, got into the semiconductor industry after its 2016 acquisition of chipmaker Sandisk. It specializes in NAND chips, a type of flash semiconductor used for data storage.
Micron deals in two types of chips, flash and dynamic random-access memory, or DRAM, chips, which end up in various electronic devices including computers.
Both companies are commodity chipmakers, meaning there's little that differentiates their products from mass-market equivalents, Cramer explained.
"They're not like Nvidia or AMD or Intel, where each product is protected by a wall of patents," he said. "Theoretically, if you want to get into the flash memory business, all you really need is enough money to build a fab — that's industry speak for a semiconductor factory."
That's why so many investors consider flash and DRAM chips to be a boom-and-bust business. When demand increases, pricing booms and Western Digital and Micron make fortunes. But as new capacity enters the market and supply increases, prices break down.
But Cramer argued that there is "a fundamental difference" between Western Digital and Micron. Western Digital's business is largely driven by NAND flash sales, whereas the majority of Micron's business comes from DRAMs, an entirely different market.
"When you look at the breakdown in Western Digital, it makes perfect sense to me," Cramer said, referencing analysts' 2017 predictions that figured flash chips would see "serious pricing pressure" by late 2018 or early 2019.
"For a while, ... the pricing held up better than they'd expected. However, in March, we started hearing about large increases in NAND flash shipments," he continued. "More shipments translates into weaker pricing. And that's when Western Digital's stock started getting pummeled."
But Micron's story is different. While its business could be hurt by falling prices, the chipmaker is much more disciplined about its DRAM sales and recently introduced a $10 billion share buyback, which could boost the earnings per share.
"Going forward, I think that could be the real difference between Micron and Western Digital," Cramer said. "When Micron's stock goes down, the company will be in there buying it hand over fist with you. When Western Digital's stock goes down, it just goes down."
So while he admitted that the pain wasn't necessarily over, Cramer was intrigued by the stock of Micron, which he said would get cheaper as long as Wall Street continued to snub the company.
"These commodity semiconductor [stock]s, they've been in the house of pain, and I wouldn't touch Western Digital, even down here," he said. "As for Micron, I think this is the kind of stock that actually gets cheaper on the way down, especially since the company's doing better than you'd believe and management's repurchasing a massive number of shares. I'm not saying it can rebound overnight, but I do think Micron is worth buying here."
Micron's stock ended Wednesday's trading session lower, down 1.33 percent at $45.15 a share. Shares of Western Digital rose slightly into the close, settling up 1.11 percent at $58.36.