Micron Technology Inc. shares were outpacing the broader chip sector Monday as one analyst upgraded the memory-chip maker’s stock owing to what appears to be an earlier-than-expected uptick in demand.
While the memory market has been weak lately, Deutsche Bank’s Sidney Ho thinks artificial-intelligence servers are helping provide a lift, in what bodes well for Micron’s stock. He upgraded it Monday to buy from hold, writing that “inflecting fundamentals mark the start to the upcycle” in the memory-chip market.
Ho said his prior, more cautious stance on Micron shares was “driven by the levels of excess inventory in the supply chain and weak macro end-demand,” but he now deems “the worst of the downcycle as behind us, given aggressive production cuts by all suppliers, as well as pockets of demand strength particularly in AI servers.”
Ho lifted his price target to $85 from $65 on shares of Micron
MU,
which were up 0.9% in afternoon action, while the PHLX Semiconductor Index
SOX
advanced 0.6%. Both the S&P 500
SPX
and the tech-heavy Nasdaq
COMP
were up 0.3% Monday.
Boise, Idaho-based Micron specializes in making DRAM and NAND memory chips. DRAM, or dynamic random access memory, is the type of memory commonly used in PCs and data-center servers, while NAND chips are the flash memory chips used in smaller devices like smartphones and USB drives.
Ho said that DRAM prices “started to improve at least one quarter ahead of our expectation on the recent demand strength for AI servers,” and he remarked that the market tends to underestimate earnings per share during an upcycle.
Of note, Micron’s 1-beta DRAM chips are designed for data centers, which are boosting demand for the hardware needed to power large language models and generative AI, like Microsoft Corp.
MSFT,
-backed Open AI’s ChatGPT.
Ho said that should position the company nicely in calendar 2024 “with the surge in demand for AI server build-outs,” specifically on Micron’s HBM3e high-bandwidth memory chip. Micron is “well positioned” to be a second source for Nvidia Corp.
NVDA,
in the second half of 2024, according to Ho.
“We believe [Wall] Street estimates will increase sharply over the next six months, as it appears that the Street may have underestimated the power of price increases, especially in the beginning of a price-inflection period,” with the potential for about 20% upside from current levels, the Deutsche Bank analyst said.
Analysts surveyed by FactSet forecast Micron to report a fourth-quarter loss of $1.15 on revenue of $3.95 billion. For fiscal 2024, analysts expect a loss of 88 cents a share on revenue of $20.27 billion.
The company came off its worst quarter ever in March, with a loss of $2.12 a share, or $1.91 on an adjusted basis, while Chief Executive Sanjay Mehrotra said that its inventory issued had peaked. In late June, analysts were already sniffing around for a bottom in the memory-chip market.
Of the 37 analysts who cover Micron, 27 have buy-grade ratings, eight have hold ratings and two have sell ratings, along with an average price target of $79.53, according to FactSet.
Micron is scheduled to report earnings after the close of markets on Sept. 27.
Read: Micron CEO calls bottom in memory-chip market, but weak PC, smartphone forecasts cut into expected AI gains
Micron shares are up 41% year to date, compared with a 38% gain in the PHLX Semiconductor Index, a 16% gain in the S&P 500 and a 31% rise in the Nasdaq Composite.
Read: Micron is ‘at the bottom of this deep downturn,’ but ‘China complicates the recovery plan’
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