Micron leads chip stocks higher as earnings show memory maker ‘doing more with less’

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Micron Technology Inc. shares led chip stocks higher Thursday after the memory chip maker’s strong quarter overcame concerns about manufacturing and won praise from a loud chorus of analysts.

The Boise, Idaho-based chip maker topped Wall Street expectations in its quarterly results and outlook Wednesday afternoon, but analysts started questioning whether Micron’s $9 billion in capital expenditures was enough given a world-wide shortage in both chips and facilities that make them. Micron scrubbed plans to build out its capacity in 2019 following massive oversupply problems in the wake of a previous boom in memory demand.

Opinion: Huge demand for memory chips remains, so what is Micron doing about it?

Investors pushed Micron
MU,
+5.79%

shares as high as $95.75 early in Thursday’s session, 8.5% higher than Wednesday’s close, as at least 21 of 34 analysts tracking the stock increased their price targets, according to FactSet. Chip stocks followed along amid hopes that President Biden’s infrastructure plan will boost manufacturing of chips in the U.S. during a widespread shortage, and the PHLX Semiconductor Index
SOX,
+2.88%

gained 2.8%.

Evercore ISI analyst C.J. Muse, who has an outperform rating and a $135 price target, said the shortages and Micron’s disciplined capex was driving a perfect storm “in a good way.”

“Investors are long, expectations were high, and Micron delivered,” Muse said. “It’s
hard to see issues ahead, particularly considering lean inventories at Micron’s customers as well as equipment slots that are largely full until 1H22.”

Muse said “considering the current shortage situation and disciplined capex, it’s hard not seeing this cycle lasting longer than previous cycles.”

See also: Semiconductor stocks are getting a lift from Biden’s big spending plan

Mizuho analyst Vijay Rakesh, who has a buy rating on Micron and a $104 price target, said the company was positioned for a stronger 2021 and focused on a Wall Street Journal report late Wednesday that both Micron and Western Digital Corp.
WDC,
+6.28%

are considering bids for Japanese NAND maker Kioxia Holding Corp. in the $30 billion range.

“We believe any consolidation would be a big positive for the Memory industry and specifically for the stability of the oversupplied NAND market, as it could drive significant pricing power and leverage, especially against a backdrop of looming shortages,” Rakesh said.

NAND chips are the flash memory chips used in smaller devices like smartphones and USB drives, unlike DRAM, or dynamic random access memory, which is the type of memory commonly used in PCs and servers. While DRAM chips are in short supply, NAND chips, on the other hand, are still trying to recover from oversupply problems.

For more: Worldwide chip shortage expected to last into next year, and that’s good news for semiconductor stocks

Cowen analyst Karl Ackermann, who has an outperform rating and a $105 price target, said that Micron is “doing more with less.”

“Prudent capacity planning is now paying off and is clearly evident from improved pricing and margins,” Ackermann said. “NAND consolidation isn’t necessary for MU, but consolidation would be a tailwind to suppliers.”

“We think many investors were looking for an upwardly revised capex guide given the ‘severe undersupply’ of DRAM, which is causing upward pressure on pricing,” Ackermann said.

Of the 34 analysts who cover Micron, 29 have buy or overweight ratings, and five have hold ratings. Of those, 21 hiked their price targets for an average target of $117.93, up from a previous $114.86, according to FactSet. Over the past 12 months, Micron shares have gained 135%, compared with a 124% increase by the SOX index, a 62% rise by the S&P 500 index
SPX,
+0.85%
,
and a 83% gain by the Nasdaq Composite Index
COMP,
+1.77%
.



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