Micron Technology Inc. shares dragged on the chip sector Thursday as a beat-and-raise earnings report did not overcome uncertainty about how long memory chips will remain in high demand as supply shortages in the broader sector work themselves out.
Late Wednesday, the Boise, Idaho-based chip maker’s quarterly results and outlook topped Wall Street expectations and forecast that memory chip demand would stay strong for several quarters.
Micron
MU,
shares, however, led the chip sector lower Thursday, and were last down nearly 5% at $80.90, with the PHLX Semiconductor Index
SOX,
down 0.8%. The S&P 500 index
SPX,
and the Nasdaq Composite Index
COMP,
were trading fractionally higher.
Of the 32 analysts who cover Micron, 27 have buy or overweight ratings and five have hold ratings. Of those, only four raised their price targets and one reduced theirs resulting in an average price target of $120.61, according to FactSet data.
Read: The semiconductor shortage is here to stay, but it will affect chip companies differently
Evercore ISI analyst C.J. Muse, who has an outperform rating and a $135 price target, said investors expected the strong results and that concerns are more “laser focused” on demand trends.
“On this front, we highlight a very positive outlook from Micron with a vison for supply to remain tight for both DRAM and NAND into CY22 – though we suspect investors will take a wait and see approach here,” Muse said.
Micron specializes in DRAM and NAND memory chips. DRAM, or dynamic random access memory, is the type of memory commonly used in PCs and servers, while NAND chips are the flash memory chips used in smaller devices like smartphones and USB drives. Like most semiconductors, memory chips have been in great demand during the COVID-19 pandemic, and prices have shot higher.
Investors likely have not forgotten 2018, when DRAM and NAND prices were skyrocketing only for them to crash after customers double- and triple-bought chips to lock in lower prices, leaving chip makers with massive inventories.
Cowen analyst Karl Ackerman, who has an outperform rating and a $105 price target, supported Muse’s sentiment.
“A beat-and-raise was better than our view of buyside expectations, but the bugaboo is primarily a moderation in DRAM cost reduction as some investors grapple with where we are in the current memory cycle,” Ackerman said.
Mizuho analyst Vijay Rakesh, who has a buy rating and a $107 price target, said Micron is “well positioned for a strong 2021, with DRAM (73% of revenues) and
NAND supply both expected tight into C22.”
Citi Research analyst Christopher Danley, who has a buy rating and a $135 price target, said that DRAM pirces could flatten in the fourth quarter and then go up in 2022.
“Though recent weak DRAM market sentiment due to pushouts in the PC/handset supply chains could have an impact on memory pricing negotiations in 2H, Peter Lee, our Korean memory analyst, expects overall server DRAM demand to remain solid given a recovery in enterprise spending in 2H21,” Danley said.
Over the past three months, Micron shares have fallen nearly 13%, while the SOX index grown 2%, the S&P 500 has risen 7%, and Nasdaq has gained 8%. During Micron’s third quarter, shares closed at $95.59 on April 12, just short of their all-time closing high of $96.56, set on July 14, 2000.
