Micron Technology Inc. has seen its shares outperform the broader chip sector, thanks to an upgraded stock rating from analyst Sidney Ho of Deutsche Bank. The memory-chip maker is experiencing an earlier-than-expected increase in demand, largely driven by artificial intelligence (AI) servers.
Despite recent weakness in the memory market, Ho believes that AI servers are providing a much-needed boost. In light of this encouraging trend, Ho has upgraded Micron’s stock from hold to buy, noting that the company is entering an upcycle in the memory-chip market.
Previously, Ho was more cautious about Micron shares due to elevated inventory levels in the supply chain and weak macro-end demand. However, with aggressive production cuts by all suppliers and pockets of demand strength, particularly in AI servers, he believes that “the worst of the downcycle” is now behind them.
Ho has also revised his price target for Micron’s shares from $65 to $85. As of Monday afternoon, Micron’s stock was up 0.9%, while the PHLX Semiconductor Index rose 0.6%. The S&P 500 and Nasdaq also experienced modest gains of 0.3%.
Headquartered in Boise, Idaho, Micron specializes in manufacturing DRAM and NAND memory chips. DRAM chips are commonly used in PCs and data-center servers, while NAND chips are found in smaller devices like smartphones and USB drives.
Ho highlights that DRAM prices have improved ahead of expectations due to strong demand for AI servers. He also points out that the market often underestimates earnings per share during an upcycle.
It’s worth mentioning that Micron’s 1-beta DRAM chips are designed for data centers, which play a crucial role in powering large language models and generative AI applications such as Microsoft Corp.-backed Open AI’s ChatGPT.
Micron’s Promising Position in the AI Server Market
Micron, a leading semiconductor company, is set to capitalize on the increasing demand for AI server build-outs in 2024, thanks to its cutting-edge HBM3e high-bandwidth memory chip. Industry experts believe that Micron is well-positioned to become a second source for Nvidia Corp. in the latter half of 2024. This positive outlook has led analysts to predict a significant surge in Wall Street estimates over the next six months, particularly due to underestimated price increases during this period.
Analysts surveyed by FactSet anticipate that Micron will report a fourth-quarter loss of $1.15 per share on revenue of $3.95 billion. Looking ahead to fiscal 2024, they project a loss of 88 cents per share on revenue of $20.27 billion.
In March, Micron experienced its worst quarter yet, recording a loss of $2.12 per share ($1.91 on an adjusted basis). However, CEO Sanjay Mehrotra expressed confidence that the company had reached its inventory peak. Consequently, analysts have started exploring the potential for a market recovery in the memory-chip industry.
FactSet data reveals that out of the 37 analysts covering Micron, 27 rate the stock as a buy, eight recommend holding, and two advise selling. The average price target for the company stands at $79.53.
Micron is scheduled to release its earnings report after the close of markets on September 27.
Read: Micron CEO calls bottom in memory-chip market, but weak PC and smartphone forecasts impact expected AI gains
Despite challenges faced by the PC and smartphone markets, Micron shares have experienced a remarkable 41% year-to-date growth. This compares favorably to the 38% upswing in the PHLX Semiconductor Index, a 16% increase in the S&P 500, and a 31% rise in the Nasdaq Composite.
Read: Micron is ‘at the bottom of this deep downturn,’ but ‘China complicates the recovery plan’