Markets are built on the supply and demand equation, which is particularly important in the semiconductor industry. By its nature, this sector is highly cyclical, and companies’ trajectories often follow the shift in dynamics.
In recent quarters, Micron (MU) has benefited from greater demand for its memory products. Despite investor worries that cloud and OEM customer inventory build-ups are becoming oversaturated, following talks with Micron’s CFO, Wells Fargo’s Aaron Rakers thinks these concerns are overblown.
The 5-star analyst said the discussions reinforced his “positive thesis on DRAM bit supply vs. demand and potential for continued stabilization in NAND (demand-driven) into 2H2021.”
That said, Rakers does think that as the industry progresses through a next-gen server CPU cycle with “expanded memory channel support,” it’s reasonable to expect some datacenter customers and OEMs’ inventories have been on the rise. However, the analyst does not believe these have been “significant and thus disruptive of what appears to be a sustainable DRAM up cycle through 2021.”
Furthermore, per the conversation, the company is still confident that through 2021, there will continue to be sharp shortages in the DRAM industry.
Rakers’ take is that customer inventory levels could presently be characterized as “being in the low/mid-optimal levels.”
Elsewhere, Rakers remains confident Micron is executing on its technology roadmap. The company highlighted its belief in the continued 1Znm DRAM ramp and the development of the hugely cost effective 1αnm process node.
According to DRAMeXchange estimates, 30% of Micron’s bit production in 1Q21 went toward the 1Znm DRAM, way more than the respective 16% and 4% contributions at Samsung and SK Hynix.
Rakers thinks investors’ focus has now turned to the 1αnm ramp, as it could potentially accelerate cost declines due to the 40% bit density improvement compared to the 1Znm; 1αnm DRAM will be the “workhorse process node into F2022.”
All in all, Rakers has an Overweight (i.e., Buy) rating on MU shares, backed by a $115 price target. The implication for investors? Upside of ~34%. (To watch Rakers’ track record, click here)
Rakers’ colleagues like Micron too. The 25 recent analyst reviews breakdown as 21 Buys vs. 4 Holds, coalescing to a Strong Buy consensus rating. The $119.17 average price target suggests upside of ~39% on the one-year horizon. (See MU stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.