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Micron Initiated Underperform at Bernstein on Sector Downcycle

Micron is a 'technology leader' but a downcycle 'has just begun,' a Bernstein analyst says.
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Micron Technology  (MU) - Get Free Report was the subject of some guarded optimism Monday from a Bernstein analyst who initiated coverage of the chipmaker with an underperform rating and a $58 price target.

Shares of the Boise, Idaho, company at last check were up 1,7% to $68.65.

Analyst Mark Li started coverage on the Global Memory sector. He said he sees memory having "a positive structural view," but finds the sector's cyclicality "too painful to ignore," according to the Fly. 

Li also began coverage of Samsung Electronics  (SSNLF)  and SK Hynix with underperform ratings.

The analyst said that he liked Micron most among the three companies. Micron is "now the technology leader" after launching its 1anm and 176L into the market this year, he said.

But a downcycle has just begun, and the analyst doesn't think it will end until late 2022. The stocks have corrected, but there is "likely more to come," he said.

Meanwhile, Evercore ISI analyst C.J. Muse raised some concerns about Micron following a 6.5 magnitude earthquake that struck Taiwan on Sunday.  

Muse said he understood that the earthquake hurt Micron's production at its Taoyuan facility, which he said accounts for about one-third of Micron's total DRAM capacity in a market where the company has about 25% industry market share

Muse said the full extent and magnitude are not completely clear, but are "something to watch." He thinks any meaningful production hit could pull in a DRAM pricing inflection sooner than current consensus expectations. 

Given the 30% pullback in the shares since the April peak and the potential for a DRAM pricing trough that may come sooner than expected, Muse sees "a very interesting risk/reward" balance. He maintained his outperform rating and $100 price target on Micron shares.

Last week, Micron said that it planned to invest more than $150 billion over the next 10 years to meet increasing demand.

In September the company saw its shares drop after the company beat Wall Street's fourth-quarter earnings expectations, but fell short of analysts' first-quarter revenue forecasts.