This Bull Says Micron Technology, Inc. (MU) Is a Positive Outlier to Negative Memory Warnings

Morgan Stanley's Joseph Moore sees close to 30% upside potential for Micron even with a less than "exceptional" 2018 in store for memory.

Should Micron Technology, Inc. (NASDAQ:MU) investors get scared off by expectations that next year will not be the same “exceptional” chip making playing field as this year was for memory?

Kathryn Huberty of Morgan Stanley had cautioned against the downward spiral awaiting in NAND flash prices, one that resulted in a downgrade of MU rival Western Digital, promptly sending investors in the chip-verse running for the hills.

However, Morgan Stanley analyst Joseph Moore deems Micron an exception to the memory rule, noting: “We would highlight MU, and to some degree Semicaps, as positive outliers to our global team’s negative call on memory.”

As such, the analyst argues the chip giant is worth the buy even in an abating NAND environment, reiterating a Buy rating on MU stock with a price target of $55, which implies a nearly 30% upside from current levels. (To watch Moore’s track record, click here)

True, “supply is accelerating in some areas in 2018,” NAND flash memory included. However, even with pressure on memory chips, Moore believes Micron’s NAND business can stand through the fire of 2018, thanks to encouraging demand that “has been very healthy across most markets.” Keep in mind, demand is opening up to new possibilities, from AI to autonomous technology in cars to IoT and automation.

Ultimately, “Though we are largely in agreement that NAND is likely to weaken, we think that Micron’s NAND business is in a unique position to offset this through a combination of NAND cost reduction of more than 30% in the next 12 months, as well as relatively better revenue positioning as the company moves from the highest cost planar process to a competitive second generation 3D process. Meanwhile we remain constructive on DRAM (2/3 of Micron revenues) where 2017 wafer fab equipment dollars will finish 10%+ below 2015 levels indicating relatively minimal change to the supply curve, amid strong cloud demand drivers. We would anticipate moving to a more cautious stance at some point in 2018, but we continue to defer that decision based on the strength of our near-term checks,” Moore contends.

On a closing bullish note, the analyst draws attention that robust conditions each time yield indications of customary inventory builds, and these kinds of omens are not usually ones to translate unfavorably for stocks “until those conditions reverse.” Does Moore see this transpiring as 2018 kicks off? No, the analyst surmises, not with such “solid demand.” All the same, the analyst braces for the rising risk factor for demand downside to encounter shrinking customer inventory, but short-term, Moore is banking on Micron in his bullish corner.

TipRanks shows Micron remains a tech darling of the Street, fears of NAND running amiss or not, with 21 out of 23 analysts of the last 3 months rating a Buy on the chip giant and just 2 maintaining a Hold on the stock. The 12-month average price target of $53.85 boasts upside potential of 28% from where the stock is currently trading.

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