SSNLF - Micron rises as analysts realize 'deeper bottom' but recovery is near

2023-03-29 07:57:49 ET

Micron Technology ( NASDAQ: MU ) shares rose more than 2% in premarket trading on Wednesday as Wall Street analysts acknowledged the downturn for the semiconductor company has been deeper than expected, but a recovery is approaching.

Barclays analyst Tom O'Malley, who has an overweight rating and $70 per-share price target on Micron ( MU ), noted the "persistent" weakness in several end markets has pushed the recovery out and resulted in lower book value for Micron ( MU ), but it is "well positioned," especially as the data center improves.

"We think the stock works despite the reset number and the name plays into the AI theme that is a real driver for the [data center] business into the next [fiscal year]," O'Malley wrote in an investor note.

Bank of America analyst Vivek Arya, who rates Micron ( MU ) shares neutral, also said there is "no quick fix," but it looks like the weakness in the memory market is starting to subside, even if Micron ships less product and loses "modest share" to Samsung ( OTCPK:SSNLF ).

"[The fiscal second-quarter] should mark the bottom of this cycle as PC/smartphone inventories improve and new data center/AI product cycles help drive memory demand," Arya wrote.

In conjunction with its fiscal second-quarter results, Micron ( MU ) wrote down $1.43B worth of inventory, resulting in a negative impact of $1.34 per diluted share.

Arya also noted that that while the near-term environment for DRAM and NAND are "challenging," the company may get a benefit from reshoring and the U.S. CHIPs Act , given it is the only U.S.-based leading edge memory producer.

Arya lowered his estimated 2024 and 2025 earnings per estimates after the report.

J.P. Morgan analyst Harlan Sur reiterated the firm's overweight rating and raised the per-share price target to $75 from $65, noting the company has made "good progress" on excess inventory, but still has more work to do.

"As the company manages through one of the worst memory downturns, the team is starting to see some light at the end of the tunnel with inventory levels continually improving across a broad set of end markets with a sight towards bit demand growth in the [second-half]," Sur wrote in an investor note.

Sur added Micron's ( MU ) stock is likely to keep moving in a "positive direction" as the year goes on and investors start to discount the revenue and pricing recovery in the second-half, following "aggressive" supply cuts, inventory write downs and a better demand environment.

Earlier this month, investment firm Citi said Micron ( MU ) was among the "least popular" chip stocks to own for investors .

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