Deutsche Bank has upgraded Micron Technology Inc (MU) from Neutral to Buy with a price target of $85. This represents a ~20% potential upside from current levels.
Previously, there were concerns about excess inventory in the supply chain and weak overall demand, which justified the neutral stance on Micron. However, the worst of the downcycle seems to be behind us.
Deutsche Bank analysts attribute this change in outlook to aggressive production cuts by all memory suppliers and pockets of strong demand, especially in AI servers that require HBM and DDR5 memory.
DRAM prices have shown signs of improvement, surpassing the earlier predictions made by Deutsche Bank by at least one quarter. This price increase is primarily driven by robust demand for AI servers. Furthermore, supply chain assessments suggest that these price increases are sustainable and likely to gain momentum over the next two quarters due to limited supply growth.
Deutsche Bank expects Micron to provide commentary suggesting improvements in the subsequent quarters, which will result in significant upward revisions to Street estimates for the remainder of calendar year 2023 and 2024 after earnings.
Micron Technology is gaining confidence in the competitiveness of its 1-beta DRAM technology. The company’s strategic focus on catching up with competitors in terms of technology development has paid off in recent years.
In addition, Micron’s recent announcements, such as the introduction of 128GB DDR5 modules based on 1-beta 32Gb monolithic dies, 24GB/36GB HBM3 Gen 2 (HBM3e), and LP DRAM designed for data centers, position the company favorably for the expected surge in demand in CY24 due to AI server build-outs.
Regarding HBM3e, Micron is well-positioned to be a secondary supplier for NVIDIA Corporation (NVDA) in the latter half of CY24, further solidifying its competitive position.
Price Action: MU shares are up 1.52% at $70.94 on the last check Monday.
