Analysts from Sterne Agee and MKM Partners explain why they are bullish on semiconductor companies Micron Technology, Inc. (NASDAQ:MU) and NVIDIA Corporation (NASDAQ:NVDA). One believes that MU stock will recover despite a predicted weak earnings, believing DRAM trends will start to turn around, while the other cites several catalysts for Nvidia’s stock ahead of its upcoming analyst day and product launch.
Micron Technology, Inc.
Sterne Agee CRT’s top analyst Doug Freedman provided his insights on Micron prior to its Q2:16 earnings on Wednesday. The analyst’s main concern is a decline in DRAM pricing, which has plagued the company in recent quarters due to “continued demand softness caused by prolonged PC headwinds.” As a result, the analyst lowered his estimates for revenue and EPS for the next two quarters. However, he believes things will start to turn around for the company. He explains, “While we are lowering estimates in light of the recent DRAM headwinds, we expect DRAM business to stabilize after MayQ.”
Although this quarter marks the first in 11 for which the company will “likely see negative profit,” the analyst points to a variety of factors as future catalysts for the stock in the second half of the year. These include a more stable PC and DRAM market, higher DRAM demand due to Apple product launches, “material GM improvement from the close of Inotera acquisition,” and a 50% increase in NAND output by the company. Furthermore, the analyst expects the company to issue $700M more debt as a result of the Inotera debt financing, “removing potential dilutive impact.”
The analyst maintains his Buy rating on the stock with a $19 price target. Doug Freedman is ranked #31 out of 3,812 analysts on TipRanks. He has a success rate of 67% recommending stocks with an average return of 17.5% per recommendation.
According to TipRanks, out of the 13 analysts who have rated the company in the past 3 months, 9 gave a Buy rating, 1 gave a Sell rating, and 3 remain on the sidelines. The average 12-month price target for the stock is $14.42, marking a 39% upside from current levels.
Analyst Ian Ing of MKM Partners commented on NVIDIA’S upcoming analyst day on April 5. Ing predicts an “upbeat analyst day, focused on an inflection of GPU adoption in public cloud applications and continued leadership in GPUs via its Pascal platform launch.” The analyst notes that as a result of the upcoming Pascal launch, which is 10x faster than its most popular Maxwell GPU’s, the latter experienced a minimal y/y price decline “despite being relatively long on the tooth.”
Ing points to various recent examples of “machine learning at hyperscale cloud customers (where GPUs help computers learn like humans),” making him optimistic on the upcoming product launch and its positive implications for the company. He specifically mentions major tech giants Facebook and Google’s recent transitions to the cloud and increasing reliability on machine learning. The analyst also highlights the autonomous driving trend, explaining, “Automotive in 2016 largely remains a Tegra/Infotainment play, although autonomous driving is a long-range GPU opportunity.” Ing predicts heavy competition in this sector, pointing to recent moves by Tesla to enter the field. However, the competition “has been focused more on multi-purpose application processors vs. the GPU accelerators necessary for machine learning.”
The analyst reiterates a Buy rating on the stock with a $39 price target. He explains, “NVDA remains our top semiconductor pick, based on strength in its core gaming business (58% of January quarter sales) plus abundant “call options” where GPUs could become the ideal solution in coming years (VR gaming, cloud data center acceleration, driver assist/autonomous driving, autonomous drones, etc.).”
Ian Ing has a 61% success rate recommending stocks with an average return of 12.1% per recommendation.
According to TipRanks’ statistics, out of the 16 analysts who have rated the company in the past 3 months, 6 gave a Buy rating, 1 gave a Sell rating, and 9 remain neutral. The average 12-month price target for the stock is $33.23, marking a 4% downside from where shares last closed.