Shares of Micron Technology (NASDAQ: MU) have tanked 40.7% this year and are currently hovering near a 52-week low, despite the semiconductor giant reporting upbeat fiscal Q2 results.
Micron is expected to announce its fiscal Q3 results on June 30. The company is the fourth-largest semiconductor company in the world in terms of revenues, excluding IP (intellectual patents) or software revenues.
MU’s portfolio of memory and storage products includes DRAM (dynamic random-access memory), NAND, and NOR products under its Micron and Crucial brands. DRAM accounts for more than 70% of the company’s revenue.
Last month, Micron stated at its Investor Day that it anticipates DRAM bit demand to grow at a Compounded Annual Growth Rate (CAGR) in the mid-to-high teens, while NAND bit demand is expected to be in the high 20s percentage between 2021 to 2025.
The company’s management indicated on its fiscal Q2 earnings call that it expected “underlying demand in calendar 2022 to be led by data center, ongoing adoption of 5G smartphones and continued strength in automotive and industrial markets”
However, earlier this week, Mizuho (MFG) Securities analyst Vijay Rakesh’s channel checks indicated that DRAM consumer demand has lowered considerably, but NAND is worse, “with weak demand offset by better supply from Kioxia.” Kioxia is a Japanese chipmaker.
Moreover, the analyst stated that his Asia channel checks indicated PCs and handsets are “suffering from high memory inventory” over the near term while the only bright spot was that data center demand remained solid in the U.S.
In contrast, hyperscale data center demand in China is “seeing order delays, pushouts, and headcount reductions.”
Rakesh is of the view that “inventory build, compounded by slower consumer PC/mobile (~60%/~50% of NAND/DRAM consumption) demand during 1-2Q and exacerbated by lockdowns, has pressured DRAM/NAND prices.”
The analyst expects the pricing trend for DRAM and NAND products to be negative in the second half of the year.
As a result, while Rakesh remains bullish on the stock with a Buy rating, he lowered his price target to $95 from $113 on the stock. The analyst’s current price target implies upside potential of 67.3% at current levels.
Wall Street analysts are cautiously optimistic about Micron with a Moderate Buy consensus rating based on 13 Buys, four Holds, and one Sell. The average Micron price target of $105.79 implies 86.3% upside potential at current levels.
Bottom Line
While the underlying demand for MU’s products continues to be strong, the impact of pricing pressure on its fiscal Q3 results remains to be seen.
Investors on TipRanks, however, are very positive about the stock as indicated by the TipRanks Crowd Wisdom tool. This tool indicates that 11.5% of the best-performing portfolios on TipRanks have increased their holding of MU in the past 30 days.
