Micron Stock Will Rally Because the Slide in Chip Prices Is Almost Over, Analyst Says
By Tae Kim
March 28, 2019 11:17 a.m. ET
Investors should buy Micron Technology stock (ticker: MU) because memory prices will bottom in a few months, according to RBC Capital Markets.
The chip maker is a leader in the DRAM and NAND memory-semiconductor market. DRAM refers to dynamic random-access memory, used in desktop computers and servers. NAND is flash memory, which is used in smartphones and solid-state hard drives.
The back story. Micron shares have rallied about 25% so far this year in anticipation of a recovery in chip prices in the second half of the year.
What’s new. RBC Capital Markets analyst Mitch Steves assumed coverage on Micron stock on Thursday with an Outperform rating, predicting a better memory-pricing environment later this year.
“While demand dynamics are challenging, the memory space historically rallies on ‘the last cut,” he wrote on Thursday. “We believe prices are continuing to come down and we will likely see a bottoming around the [second quarter/third quarter] time frame.”
Micron stock was up 1.1% to $39.65 on Thursday.
The analyst cited how demand from data centers is holding up with the typical memory cost in a server at more than $1,000. He predicts demand in the overall memory market will improve by the fourth quarter.
“Our investment thesis on MU is predicated not on there being no more cycles but rather on our belief that the cycle(s) going forward will be more muted and less volatile,” he wrote.
Looking ahead. Steves started his price target for Micron stock at $50, 26% higher than the current stock price.
On Wednesday, German chip maker Infineon lowered its sales growth guidance for the fiscal 2019 year to 5% from 9%, citing weaker macroeconomic conditions, especially in China. The forecast reduction might be a signal that the second-half recovery for chip fundamentals may be a tenuous assumption.
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