Shares of memory and storage makers Micron Technology (MU) - Get Micron Technology, Inc. (MU) Report and Western Digital (WDC) - Get Western Digital Corporation Report posted gains on Tuesday after Cowen upgraded both stocks to outperform from market perform, and also raised its one-year stock price targets for each.
Both Micron Technology and Western Digital shares gained in Tuesday morning trading after Cowen analyst Karl Ackerman raised his outlook on expectations that general demand for chips and memory devices will continue to recover in 2020, justifying higher valuations.
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,” Ackerman wrote in a note to clients.
Shares of Micron Technology were up 5.86% at $56.70, while shares of Western Digital were up 4.17% at $66.01.
Analysts have pointed to a few positive market factors for chip and storage makers, including the ongoing rollout of 5G as well as expectations of a ramp-up in the videogame-console upgrade cycle, both of which will drive demand, in particular for NAND chips.
“DRAM fundamentals may improve earlier than expected, supporting MU’s improved cost position vs. peers,” Ackerman wrote. NAND chips, meantime, are seeing “better than feared” costs, and “NAND should become profitable again as new smartphone launches tighten supply.”
Micron in particular 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.
Ackerman raised his one-year target price on shares of Micron to $70 from $50, and on Western Digital to $88 from $45.