Jon Hadad

About the Author Jon Hadad

Jon Hadad graduated from the University of Delaware with a degree in political science. Prior to joining the Smarter Analyst team, he was an industry analyst at a New York research firm.

The End of the Road for Micron’s (MU) Run?


Micron (MU) has battled a host of challenges over the past year, including the chips market collapse, as well as US-China trade tensions. But with the market seemingly improving and tensions between the two world powers lessening, there is reason for optimism. This was partly shown in the company’s latest quarterly report, where EPS beat analyst estimates on revenue of about $4.8 billion. Furthermore, increasing trade tensions between South Korea and Japan is playing a role in helping Micron, where Japan-set restrictions is pushing prices upward and could be a boon to Micron demand.

The result: Micron stock has soared nearly 45% in just one month.

Going forward, can Micron stock keep up the good times? Or should investors be cautious? Needham analyst Rajvindra Gill has a mixed answer for you, as he maintains a Buy rating on MU with $50 price target, suggesting that the upside at this point is quite limited. (To watch Gill’s track record, click here)

For Gill, the big news is coming out of Asia. South Korea’s SK Hynix’s second-quarter revenues declined on price declines and slow recovery in demand. Average selling prices for both NAND and DRAM fell, at 24% and 25%, respectively, quarter-over-quarter. In response, Hynix cut production, which is a “positive [development] for Micron and the rest of the memory industry.” 

A major challenge for the industry has been the supply-demand inbalance, where high supply and low demand has contributed to a fall in selling prices. Gill sees “SK Hynix’s cut in DRAM and NAND output as an important step towards the normalization of the supply-demand environment for both of these key memory technologies.” He expects this to help “mitigate the erosion of NAND and DRAM prices, which would benefit Micron and other vendors of NAND and DRAM.” 

Micron’s challenges have had little to do with Micron itself — the trade climate and industry downturn were out of the companies control. But it seems that the opposite is happening now. Increasing tensions between South Korea and Japan are making it harder for South Korean companies to competitively sell DRAM and NAND. This is shaking up to help Micron as the two largest suppliers of DRAM are Korean (Samsung and SK Hynix), while the largest NAND supplier is Korean (Samsung). Samsung has yet to announce earnings, but it is expected that they, too, will announce cuts, further aiding Micron. 

All in all, All in all, Wall Street is quite positive on this tech giant: MU has received 13 ‘buy,’ 6 ‘hold’ and 4 ‘sell’ ratings in the last three months. However, the average price target is $45.05, which represents a 5% downside, though this may simply be a case of analysts playing catch-up in updating their models since Micron’s surge. Time will tell. (See MU’s price targets and analyst ratings on TipRanks)

 

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