While many have been worried about the semiconductor sector due to supply and demand concerns for NAND and DRAM chips, Joseph Moore of Morgan Stanley remains bullish on semiconductor giants Micron Technology, Inc. (NASDAQ:MU) and Ambarella Inc (NASDAQ:AMBA).
Moore has a 54% success rate recommending stocks with a 6.3% average annual return per recommendation.
Micron Technology, Inc.
Moore remains bullish on Micron as the company shifts its focus towards an operational turnaround. While he cautions investors “not to get ahead of themselves” because this transitional year will not bring immediate results, he does believe the company will regain its footing in the long run.
The analyst believes the company’s DRAM and NAND efforts will soon be back on track, pointing to, “gradual improvement in the commodity” that will help “Micron potentially bringing DRAM and NAND costs down much faster than the competition (because of the current starting place).” He continues, “Checks on Micron’s DRAM progress are a bit more positive vs. 3 months ago,” and the company now has the potential to return $1.50 to $2 in earnings power.
While DRAM seems to be promising, the analyst notes that 3D NAND is a “show me story,” but with significant opportunity. He explains, “We believe startup mishaps in 2016 are likely, and we are conservative in projecting near term ramps, but even with those issues establishing a viable 3D story would be a significant positive for the stock.”
The analyst maintains an Overweight rating on the stock with an $18 price target, marking a 38% potential upside.
According to TipRanks, 64% of analysts are bullish on Micron, 20% are neutral, and 16% are bearish. The average 12-month price target is $14.38, marking an 11% potential upside from current levels.
Following Ambarella’s earnings last week, Moore believes that the company is poised for a rebound. In light of the earnings report, Moore reiterates an Overweight rating on the company with a $55 price target, marking a 20% potential upside from current levels.
The analyst summarizes that the earnings and outlook were largely as he had previewed, “with the
exception of significant gross margin upside based on mix in the April quarter.” He points to image sensor shortage as a “lingering concern” with some “ongoing short term risk.” Moore explains that Sony’s Kumamoto image sensor plant used to produce Ambarella’s image censors was damaged in an earthquake in April, leading him to cut estimates. Overall, he notes, “the image sensor market injects uncertainty into an already uncertain situation, and we certainly see any impact to be relatively short term, and to be cleared up later this year.”
He concludes, “We continue to like the stock; even with the aftermarket rally, the stock still trades at only 13x our CY17 EPS estimates despite strong (albeit lumpy) potential growth drivers and growing strategic importance of computer vision, and we see upside to $55.”
According to TipRanks, 43% of analysts are bullish on the company and 57% of analysts are neutral. The average 12-month price target is $54, marking an 18% potential upside from current levels.