Micron (NASDAQ:MU) shares dipped 5.5% on Tuesday, following the news that the Chinese courts have ruled in favor of UMC Corporation in a patent infringement lawsuit filed against Micron in early 2018. As a result, the Chinese court has issued a temporary injunction banning MU from selling 26 products (across DRAM & NAND) effective immediately.
However, Mizuho’s top analyst Vijay Rakesh says, “We would be buyers on the pullback,” while reiterating a Buy rating on MU with a price target of $72, which represents a potential upside of 36% from where the stock is currently trading.
Rakesh wrote, “While specific details are not known, we believe a back of the envelope look shows it could be constructive for MU and the rest of the players. MU has ~20% share of the DRAM market and ~15% share in NAND. MU supplies DRAM to all the PC OEMs and to handset OEMs in China and graphics DRAM DDR5/6 to NVDA for gaming cards. Assuming MU stops selling DRAM, SSD and graphics DRAM into China, we believe it will impact the entire supply chain including the supply chain for complementary Intel/AMD/NVDA processors, or RF suppliers because of the significant impact. Also, DRAM supply is tight with little fungibility as we enter the holiday build season.”
“We therefore think it is VERY important to understand the scope of the injunction: 1) If it is very narrow, we would be buyers as it would have limited impact. 2) If the block on sales is more widespread it could cause DRAM prices to spike up given limited availability. While NAND for SSDs are relatively more fungible, for embedded NAND into handsets or automotive there is limited fungibility and could tighten NAND prices,” the analyst continued.
Wall Street tends to agree with Rakesh’s confidence on the chip giant, considering TipRanks analytics reveal MU as a Strong Buy. Out of 22 analysts polled in the last 3 months, 18 are bullish on Micron stock while 4 remain sidelined. With a return potential of nearly 57%, the stock’s consensus target price stands at $82.25.