Micron Upgraded at Deutsche on Sharper DRAM Demand

Deutsche Bank upgraded Micron Technology to buy and lifted its price target on the stock as DRAM chip demand increases.
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Micron  (MU) - Get Report shares were higher after the chipmaker was upgraded to buy from hold by Deutsche Bank analysts.

The investment firm also raised its price target 20% to $60 a share from $50.

Micron shares at last check rose 2.2% to $51.80. The new target indicates 18% upside from Monday's closing price at $50.68. 

DRAM chips are showing signs of increased demand, Deutsche Bank analyst Sidney Ho said.

"While earlier in the summer the memory market appeared to be heading into a multiquarter correction, our latest industry checks suggest that DRAM demand has picked up in both mobile and server markets," the analyst wrote. 

That "[leads] us to believe that [calendar fourth-quarter 2020] will likely be the trough of this short cycle, with a potential to see some price increases in [calendar first-quarter 2021]" 

The recent pickup in demand strength faces risks, he said, in particular that the demand is driven by inventory accumulation. But that inventory will help lessen the seasonal soft demand in first-half 2021. 

Because DRAM suppliers are willing to reduce capital spending, Ho says, smartphone and server suppliers think supply could tighten again in second-half 2021. That should lead prices to stabilize earlier than Deutsche Bank expects. 

"With the risk of significant estimate cuts substantially reduced, we believe the risk-reward is now skewed more positive, leading to our more constructive recommendation," Ho said. 

The 5G revolution will also be a big catalyst for demand growth.

"Our conversations with the supply chain also suggest that there is optimism with higher memory content in 5G smartphones, which is likely a bigger demand contributor in calendar year 2021," Ho said.