J.P. Morgan’s Global Memory team has recently raised its server DRAM revenue/shipment outlook by ~5-6% compared to their prior estimates, based on strong cloud spending trends. The key takeaways are:
- In 2018 server/cloud DRAM will overtake the PC segment to become the 2 nd largest end-market for DRAM (behind mobile).
- 2018-19 server DRAM shipments and revenues estimates were revised up ~5-6% in both years versus the team’s prior forecast from mid-June.
J.P. Morgan analyst Harlan Sur points out that the team’s revision bodes well for Micron (NASDAQ:MU) as server/cloud DRAM is the largest segment for Micron’s DRAM segment (~30% of sales in F1H18) and profitability in this segment is higher given that ASPs are higher (our global memory team assumes 20% ASP premium in server DRAM versus PC DRAM).
Sur opined, “In 2018, server/cloud DRAM will overtake PC DRAM to become the 2nd largest driver of DRAM demand (~25% of overall DRAM in 2018) and is helping to drive demand diversification and mute cyclical volatility. In 2018, cloud/server DRAM will drive ~25% of overall DRAM shipment demand (and almost 1/3 of overall DRAM revenues) versus just 8% 10 years ago, and while PC DRAM accounted for 70% of overall DRAM demand 10 years ago, today it accounts for only 22% of total demand. Bottom line: the industry demand profile is much more diversified compared to 10 years ago and this is partially what is driving our view of lower industry cyclicality going forward.”
As such, Sur reiterates an Overweight rating on Micron shares, with a price target of $84, which represents a potential upside of 53% from where the stock is currently trading. (To watch Sur’s track record, click here)
Over the last three months, Micron stock has received a whopping 18 Buy ratings and just 4 Hold ratings. As a result, the stock has a ‘Strong Buy’ analyst consensus rating. These analysts believe (on average) that the semiconductor giant has big upside potential of over 50% from the current share price. This would take MU from $55.29 all the way to $83.20.