Micron Analysts Confident Of A Longer Cycle Amid Supply Tightness And Migration To DDR5

Micron Technology, Inc. MU reported strong fiscal-year third-quarter results and issued upbeat guidance for the fourth quarter.

The Micron Analysts: Needham analyst Rajvindra Gill maintained a Buy rating and a $130 price target for Micron shares. The analyst also reiterated Micron as Needham's best Mother of all Cycles "cycle" pick.

Rosenblatt Securities analyst Hans Mosesmann reiterated a Buy rating and $165 price target.

Raymond James analyst Chris Caso reiterated a Buy rating and $120 price target.

KeyBanc Capital Markets analyst John Vinh maintained an Overweight rating and increased the price target from $115 to $120.

The Micron Theses:

Micron Will Benefit From Supply Tightness, Needham Says: Micron's results continued to benefit from end-market demand in the wake of low inventories and a lack of excess capacity, Needham analyst Gill said in a note.

Micron's 1a DRAM and 176L NAND will account for the majority of bit production by the end of the calendar year 2021, the analyst said. The company is also ordering EUV tools and will be incorporating this into its production processes in 2024, he added.

The analyst expects DRAM cost reductions to be slightly offset by COVID-19 expenses and higher back-end costs of DDR5. The margins will likely improve partially near term and meaningfully in the fiscal year 2022 due to firmer pricing on account of tight supply, he added.

Related Link: Micron Technology Stock Slams Into Resistance

Rosenblatt's Key Takeaways: Customers and the entire supply chain is moving from "just-in-time" to "just-in-case" management to mitigate the impact of any potential crises, Rosenblatt analyst Mosesmann said.

The industry move to DDR5-based solutions to align with the upcoming CPUs from Intel Corporation INTC and Advanced Micro Devices, Inc. AMD would have an impact on several points of bit supply growth for the next couple of years, the analyst said.

The quadrupling of the DDR5 chip die capacity quadruples and rapid maximization of DRAM DDR5 content in Cloud environments along with the bandwidth and reliability benefits this new standard, he added.

Micron sees stronger broad-based bit demand for DRAM and NAND, with shortages expected into 2022, Mosesmann noted.

Given modest bit growth due to Micron technology transitions, ASPs will likely continue to drive sequential growth for the next several quarters, he added.

This cycle is going long and the DDR5, being a new big content driver, may extend the cycle even longer, the analyst wrote.

Investors Uncertain Over How Long The Cycle Will Last, Raymond James Says: Micron's strong results and guidance reiterated the company's view that supply in both DRAM and NAND will likely remain tight through at least year-end, Raymond James analyst Caso said.

The company expects pricing for both to improve in the fiscal third quarter and fourth quarter, the analyst noted.

"We think the question on investor minds now isn't how far behind supply is vs. demand now, but rather how sustainable these conditions are into year-end and into 2022," Caso wrote in the note.

Assuming these tight supply conditions continue into next year, Micron should have over $12 earnings power for the fiscal year 2022, with upside likely should gross margin trend toward prior peak next year, according to Caso.

KeyBanc On The Headwinds and Tailwinds Robust cloud and improving enterprise data center trends, as well as healthy PC demand, are expected to drive continued price increases, KeyBanc analyst Vinh said. However, higher costs related to COVID-19 and new products such as DDR5 are expected to be headwinds, he added.

The Micron Price Action: At last check Thursday afternoon, Micron shares were sliding 5.62% at $80.21.

Related Link: Mizuho's Top Semiconductor Stocks For 2021: Do You Own Them?