The outlook for computer memory giant Micron (MU) is heavily dependent on its customers’ need for either the company’s DRAM (memory) or NAND (storage) offerings. Going by recent industry checks made by Deutsche Bank’s Sidney Ho, a mixed picture of contrasting trends emerges.
On the DRAM side, Ho believes the environment is in a better state than initially feared. Although since July, DRAM spot prices have kept on sliding there is growing hope that the correction will not last very long and that when compared to prior cycles, its magnitude won’t be quite as severe. Supply chain issues have caused shortages which have in turn put a cap on set builds in PCs and smartphones. However, enterprise IT expenditure is on the rise, and along with hyperscale customers intent on investing “aggressively for growth,” this has led to robust demand. Both have acted as a counter to the shortages. “Overall,” notes Ho, “We believe DRAM prices are not falling as much as feared, and we could see a bottoming of prices some time in 2Q CY22.”
On the other hand, with the exception of enterprise SSDs, NAND prices have been falling at a faster rate than anticipated. All end markets have experienced price declines which have been especially acute amongst client SSDs, exacerbated by “weakness in set builds,” and a weak Chinese mobile market.
Here, then, Ho’s takeaway contrasts with his thoughts on the DRAM segment. “Overall, we believe NAND price declines are worse than we thought a quarter ago” the analyst said, “And we see margin pressure over the next few quarters.”
So, with the sum of both segments leaving the outlook in the balance, what are the implications for investors? “With the DRAM market potentially reaching a trough earlier than we expected and the stock trading at ~1.8x NTM book value, we believe the risk/reward remains favorable,” the 5-star analyst summed up.
Accordingly, Ho reiterated a Buy rating, although the $90 price target suggests shares only have room for modest 7% growth in the year ahead. (To watch Ho’s track record, click here)
Overall, MU shares have a Moderate Buy rating from the analyst consensus, based on 16 Buys, 5 Holds and 1 Sell. The shares are selling for $84, and the $97 average price target suggests room for nearly 15.5% growth. (See Micron stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
