Top Analyst Blows Micron Technology, Inc. (MU) Market Concerns Out of the Water

Needham's Rajvindra Gill tackles- and dismantles- investor concerns circling Micron, bullish on the stock's opportunity ahead.


After a chat with Micron Technology, Inc. (NASDAQ:MU) Chief Financial Officer (CFO) Ernie Maddok at the global, show-stopping innovative tech event, the 51st annual Consumer Electronics Show (CES), top analyst Rajvindra Gill at Needham says not to worry about the chip giant.

It is clearer to this bull especially on back of this encouraging conversation that “misinformation” is spreading through the market on Micron, from implications of its NAND deal with Intel to NAND pricing apprehensions. In fact, as far as the analyst sees it, any dips in price represent “market growth potential” for the giant.

Gill explains, “We believe that there is some confusion in regards to Micron and Intel parting ways in the co-development of 3D NAND after its 3rd generation. Furthermore we believe that NAND pricing decline concerns are overblown. We believe that MU’s target of 50% + NAND bit growth will coincide with a 25%-30% decline in bit costs and see the possibility of stable margins in a declining price environment – a net positive for Micron as it addresses price elastic areas of the market such as client SSDs.”

Keep in mind the sole different now in Micron and Intel’s NAND deal is this: following the third generation 3D-NAND primed for next year, these two chip players are set to “go their separate ways” as far as the 4th Gen. 3D NAND IP development, writes the analyst. What does this change mean for Micron and its R&D? The analyst notes, “This could increase MU’s R&D by $10-$15M per quarter which, in management’s view, is a ‘no-brainer,’ as being able to develop unique IP should allow the company to broaden its addressable market by 2021.”

Ultimately, “Is the Opportunity Cost Greater than the R&D Increase?” answers Gill, who note the chip giant’s team stands “confident that it can address all the markets that it wants today.” On the other hand, the management team projects that once the page turns over to 2020 and 2021, certain applications “may not be able to be addressed by a common architecture,” the analyst comments. For this reason, Micron looks at the $40 to $60 million lift in yearly R&D as just “a small price to pay for the ability to address all areas of the market with its own unique architecture,” Gill surmises.

In reaction, the analyst reiterates a Buy rating on MU stock with a $76 price target, which implies a close to 76% upside from current levels.

Rajvindra Gill has a very good TipRanks score with a 67% success rate and a high ranking of #30 out of 4,739 analysts. Gill yields 22.6% in his annual returns. However, when recommending MU stock, Gill forfeits 14.4% in average losses on the stock.

TipRanks points to a strong Wall Street vote of confidence backing this chip maker, with 16 out of 19 analysts polled in the last 3 months rating a Buy on Micron stock and just 3 maintaining a Hold. The 12-month average price target of $59.06 boasts a solid return potential of nearly 38% from where the stock is currently trading.