Morgan Stanley told savvy investors to consider Micron Technology and Western Digital amid rising demand for memory chips.
Morgan Stanley analyst Joseph Moore on Thursday increased his price target for Micron stock to $73 from $56 and raised his forecast for Western Digital shares to $88 from $64, Barron’s said.
Micron stock (MU) was higher at $60.12 early Friday, while Western Digital (WND) rose to $71.54.
Micron is a leader in the DRAM and NAND semiconductor markets. DRAM, or dynamic random-access memory, is used in desktop computers, mobile phones, and servers, while NAND is flash memory used in smartphones and solid-state hard drives, Barron's explained. Western Digital is another maker of NAND flash memory and manufactures mechanical hard drives.
Our “channel checks make it clearer that customers are building real conviction that memory will tighten [more demand versus supply] over the course of 2020, which is leading them to put more inventory into place,” Moore wrote. “We see DRAM as a gradual bottoming process, but see Micron rerating, while we see NAND/Western Digital in more of a classical cycle bottom that looks more V shaped than we thought a month ago.”
The analyst estimates NAND flash memory prices "will rise as much as 10% in the March quarter, driven by anticipation of the next-generation videogame console launches later this year. He also predicts DRAM prices will likely rise over the next six months," Barron's quoted Moore as saying.
“We expect DRAM pricing to inflect in 2020 as inventories normalize and demand returns,” he wrote.
However, Barron's warned that investors "may want to assess how much of a recovery is already priced into the shares of chip companies. Micron and Western Digital have risen about 33% and 22%, respectively, over the last three months due to anticipation of a semiconductor industry turnaround."
Morgan Stanley isn't alone in its optimism.
“We believe we are just now entering another recovery cycle, and see more upside as DRAM price recovery begins in earnest,” wrote Charles Park, an analyst at Mizuho Securities who was referring to one of the two major types of memory chips, along with NAND products.
The firm sees a “once in a 4 year opportunity” to buy memory at the bottom of the cycle, adding that “an appeal to investing in the memory sector is the potential for a significant share price increase,” Bloomberg recently quoted Park as writing.