Micron Technology, Inc.: This Will Send MU Stock Soaring, Analyst

mu stockAnalyst: Micron Stock Will Make a Comeback

Micron Technology, Inc. (NASDAQ:MU) stock shot up 10.5% to $14.05 per share on Thursday after the company received a major upgrade.

Romit Shah, analyst at Nomura, raised his rating from “Reduce” to “Buy” on Micron stock and increased his price target from $8.00 to $18.00. That represents a 28% upside after Thursday’s surge. (Source: “Micron (MU) Stock Climbs on Nomura Upgrade,” TheStreet.com, June 23, 2016.)

“Our change in stance is based on recent supply shortages in memory, firmer pricing, and 20nm execution,” the analyst wrote in a note to investors. “We believe that semiconductor fundamentals are healthy or improving across several areas, including analog, SSDs, DRAM, and capital equipment.” (Source: Ibid.)

In case you haven’t been following, the semi-conductor industry is no longer an investor favorite these days. Micron stock has been crushed particularly hard. One of the reasons behind Micron’s downfall was the perceived future of the company’s two main products—dynamic random-access memory (DRAM) and negative AND (NAND) memories.

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DRAM and NAND memories are widely used in computers. As the PC industry’s outlook became gloomier in the past year or so, investors didn’t believe that demand for DRAM and NAND memories would remain strong. A weaker demand would put downward pressure on the price of Micron’s products, hurting the company’s top and bottom lines.

However, as it turned out, the memory business’ outlook might be brighter than expected. Mehdi Hosseini from Susquehanna Group recently wrote that “our checks over the past week suggest that pricing trends for PC & Server DRAM (which accounted for over 50% of Micron’s DRAM bit shipments), are improving and actually up into the 2H.” (Source: “Micron Surges 9%: Safe to Go Back in the Water, Say Susquehanna, Nomura,” Barron’s, June 23, 2016.)

Computers are not the only devices that use DRAM. Today, some smartphones carry more computing power than desktops did a few years ago. Their RAM capacity has also been increasing. So even if demand slows down in the PC market, Micron’s DRAM business could get a boost from the mobile phone segment.

On the NAND front, there could be a catalyst for Micron’s business as well. Hosseini said earlier this week that “Checks in Korea suggest blended NAND ASPs in 2Q are tracking down five percent quarter-over-quarter. Expectations are for blended ASPs in 2H16 to decline by only two to four percent quarter-over-quarter, if not flatten, driven by increased demand from the handset OEMs, particularly Apple, and an uptick in SSD demand (for both Client and Enterprise).” (Source: “Western Digital, SMCI Could Get Lift from NAND Tightening, Says Susquehanna,” Barron’s, June 20, 2016.)

Hosseini’s conclusion was that “there are actually increased prospects of NAND shortage into 2H.” (Source: Ibid.)

In addition, Micron could benefit from something not usually associated with semi-conductor companies—the automotive industry.

Cars today are much more than just chassis and engines. In particular, the instrument cluster, infotainment system, and advanced driver assistance systems all require some sort of storage solution. Going forward, automotive applications could lead to increasing demand in DRAM and eMMC storage, contributing to growth in Micron’s embedded business unit.

At the end of the day, the semi-conductor industry still faces headwinds. However, there are several factors that could boost Micron’s performance in the second half of this year. MU stock could still see further upside.