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Micron: Time to Load up on Shares, Says Wells Fargo

Computer memory companies are particularly sensitive to supply and demand dynamics, and the stocks’ trajectories usually closely mirror that of the cycle. Strong real-world demand will naturally see shares move higher and vice versa.

Over the past year, the pendulum has swung in both directions for Micron (MU). Following the shares’ steep run up in the latter half of last year, for most of 2021, the stock has been on the back foot; a difficult pricing environment and global supply chain issues have put pressure on the shares.

However, the stock appears to have bottomed out and at the same time the cycle looks to be turning in Micron’s favor once again. In fact, following talks with Micron’s CFO, Wells Fargo’s Aaron Rakers recommends investors load up on MU shares.

“Our meetings reinforced our positive secular view on DRAM – 5G content expansion (+50% vs. 4G), AI / ML, metaverse, accelerated compute, etc. all employing increased memory capacity and bandwidth to feed these accelerated, increasing core-count, compute engines,” the 5-star analyst said. “This is coupled with what we see as a disciplined oligopolistic competitive landscape + slowing bit density scaling with increasing complexity and capital intensity.”

There are other reasons behind Rakers’ bullish thesis.

In sharp contrast to Rakers’ previous fears of a “significant DRAM & Flash cycle rollover,” Micron highlighted they anticipate “positive demand trends” for the next year with the company actually expecting record revenue in F2022.

Rakers is also confident the company will continue to execute its road map – ramping products such as its 1αnm (alpha) DRAM and 176-layer 3D NAND. Not to mention, the company boasts a robust balance sheet with expectations of “solid” FCF and capital return of over 50% of FCF.

Accordingly, Rakers reiterated an Overweight (i.e., Buy) rating backed by a $115 price target. The implication for investors? Upside of 33% from current levels. (To watch Rakers’ track record, click here)

Turning now to the rest of the Street, where the average target is a more modest $96.09, and set to generate 12-month returns of 12.5%. Most analysts remain on Micron’s side, but support is not unequivocal; the stock’s Moderate Buy consensus rating is based on 16 Buys, 5 Holds and 1 Sell. (See Micron stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.