Shares of semiconductor maker Micron Technology (MU) - Get Report gained on Thursday after receiving another thumbs-up, this time from analysts at Raymond James, who lifted their rating to a strong buy from market perform amid what they expect to be a strong rebound in chip demand.
In a note to clients, Raymond James analyst Chris Caso upgraded Micron and raised his one-year price target on the stock to $70 amid supply/demand conditions that are “highly likely to improve further as the year progresses.”
Inventories are “approaching normalized levels,” which has helped stabilize memory chip prices, Caso said, adding that prices stabilizing in the slow part of the year coupled with limited supply growth point to “a more favorable effect on pricing” in the second half.
Shares of memory chipmakers have been on the rebound amid expectations that demand for chips and memory devices will continue to recover in 2020, justifying higher valuations.
- Micron, Western Digital, Get Upgrades on Signs of Rising Chip Demand
- Micron's Stock Remains Way Too Cheap
- Micron and Western Digital Get Another Analyst-Induced Jolt
Average selling prices for NAND chips “have bottomed and should exceed expectations in [the first half of 2020] on supply tightness from new product launches,” Cowen analyst Karl Ackerman wrote in a note to clients last month announcing his own upgrade on Micron.
Indeed, analysts have pointed to a few positive market factors for chipmakers as well as storage makers, among them the rollout of 5G as well as the expected ramp-up in the videogame-console upgrade cycle, both of which will drive demand, in particular for NAND chips.
Micron sells both NAND and DRAM memory chips. DRAM chips are generally more advanced and offer better profit margins than NAND. However, DRAM is only produced by a small number of players on a large scale, including Micron.
Because Micron Technology's revenue is more than 60% derived from DRAM chips, that means it has the potential for higher profit margins than many of its peers, TheStreet’s Michael Wiggins De Oliveira noted in a mid-December report.
Surprisingly, NAND is not an acronym. Instead, the term is short for "NOT AND."
Shares of Micron were up 1.64% at $57.70 in morning trading on Thursday.