VSComputer memory stocks are known to be highly cyclical, subject to the vagaries of supply and demand dynamics. These stocks have come under pressure lately, with investors wondering if we are at the peak of such a cycle. Shares of memory giant Micron (UM) bore the brunt of this perceived market development and lost 22% of their value over the past 6 months.
While the memory supply chain checks carried out by Deutsche Bank Sidney ho suggest that in the short term, demand remains strong as suppliers struggle to “keep pace”, analyst concedes that given the historically cyclical nature of the memory market, investors “have a more bearish outlook , Concerned about how the heavy investment in DRAM this year will affect industry supply next year.
Ho also notes that in the server market, it is generally accepted that demand remains robust at present. However, opinions diverge when the discourse turns to perspectives, particularly in reclassifying “how much stock is in the supply chain and hence their memory price outlook. “
On the demand side, delays in price negotiations in the third quarter suggest that some large cloud customers have already built up enough inventory, indicating that pricing rather than availability is more of an issue. While third quarter price negotiations are underway, sellers on the other hand pointed out that memory component prices are still up 5-10% quarter over quarter, implying that inventory levels with these customers are “may be too high”.
âThe divergence of view has led to a wide range of ASP expectations for the 4T,â Ho says, âWith the more bullish view suggesting server DRAM prices could rise by around 5% q / q, while than the more bearish view suggesting that prices could be down 5-10% q / q. â
While Ho also notes that there appears to be broad agreement that the supply-demand balance will improve in the second half of next year – which would allow a favorable configuration of CY22 – his view is that “growing uncertainty regarding DRAM prices in the short term will likely continue to put pressure on valuation multiples.
For Micron in particular, this means a âlowering of DRAM pricing assumptionsâ and with it a reduction in the target price for the stock. The figure goes from $ 110 to $ 95, but still suggests a rise of around 29%. Despite the target reduction, given the recent share price underperformance, the risk / reward ratio âremains favorableâ and Ho’s buy rating remains unchanged. (To look at Ho’s background, Click here)
Most people on the streets agree that MU stock is still a buy. 16 of 22 recent reviews are positive, with the remaining 6 remaining on the close with a sustain rating – all merging into a moderate buy consensus rating. The average price target remains bullish; at $ 111.69, the figure implies a stock appreciation of around 52% over the coming year. (See the analysis of Micron shares on TipRanks)
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