Micron Technology (MU) - Get Report and Western Digital (WDC) - Get Report rose after Morgan Stanley analyst Joseph Moore upgraded his ratings on the shares of chipmakers to overweight from equal-weight.
Moore acted on signs of increased chip demand. “We did not expect memory [chip] fundamentals to bottom this quickly, but as proof points grow, the ramifications are significant,” he wrote in a report.
“The higher trough and the elevated valuation environment for semiconductors suggests memory rerating potential, even given the moves we have already seen,” he added.
Micron has soared 77% in the last year, while Western Digital has jumped 90%.
“Channel checks make it clearer that customers are building real conviction that memory [supply/demand] will tighten over the course of 2020, which is leading them to put more inventory into place,” Moore said.
For Micron’s specialty - DRAM chips - Moore said he sees “a gradual bottoming process” for demand, but that’s enough to merit his upgrade.
For Western Digital’s specialty - NAND chips - he predicted “more of a classic cycle bottom that looks more V-shaped then we thought a month ago.”
Moore said he has “more conviction” for NAND chips than DRAM chips. “But if DRAM margins bottom out now, even if the recovery is not V shaped, the shallowness of the downturn is unprecedented, following the unprecedented upside of the 2017-18 upturn,” he said.
Buyer sentiment has strengthened markedly in the last few weeks, according to Moore. “NAND has been in an outright shortage,” he said. “For DRAM, there is no shortage, but there is a general sense from buyers that there will be.”
Moore raised his price target for Micron to $73 from $56 previously and for Western Digital to $88 from $64.
Micron traded at $59.57, up 0.51%, and Western Digital was at $71.35, up 3.94%.