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Micron Technology (NASDAQ:MU) has been struggling in the face of both cyclical and macro factors related to the trade war, but it looks as if Micron stock has a little gas left in the tank after all.
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U.S.-China trade headlines have been muted if not positive in recent weeks and that has been to the benefit semiconductor stocks, one of the most trade-sensitive groups. Just this month, the widely followed PHLX Semiconductor Index is higher by 6.21%, but some of its components are doing even better than that.
Micron stock is up nearly 13% this month, as of Thursday, Sept. 19. In fact, the maker of dynamic random-access memory, or DRAM, chips as well as NAND semiconductors, Suddenly has analysts fawning all over it.
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On Sept. 18, Goldman Sachs analyst Mark Delaney reiterated a “buy” rating on Micron, noting that the company is likely to beat Wall Street estimates when it reports fiscal fourth-quarter results.
The analyst said, “fundamentals [are] picking up but some headwinds remain,” and that he expects the company’s results and guidance will be slightly above Street consensus.
Delaney bumped his price target on Micron stock to $59 from $56, implying significant upside from the Sept. 19 close just under $50.
All About Demand
As has been previously noted, semiconductor demand is highly cyclical and that is particularly true of the DRAM and NAND markets, Micron’s bread and butter.
Micron usually does a better-than-adequate job of reflecting demand trends in those chip markets, which is to say if demand for those chips slumps, Micron stock does the same.
Samsung, which controls 47% of the DRAM market compared to Micron’s 22%, said it expects demand to pick up going into the fourth quarter, but that overhangs such as the US/China trade spat as well as the trade war between Japan and South Korea could crimp demand.
Assuming DRAM demand is tepid at best, the other catalyst for Micron stock is that prices in this space have, at least for now, stopped declining.
“Market research firm DRAMeXchange reported on Aug. 30 that the average price of 8 Gb DDR4 DRAM chips, which are used mainly in PCs, was US$2.94 that day, showing no change from the previous month…The price slightly rose in December last year and fell for seven months in a row from January to July this year. During the same period, the price dropped no less than 59.4 percent, led by an inventory glut and a sluggish demand attributable to the ongoing economic recession.”