Investors in Micron Technology are back to the good old days, with the stock rising over the past month, up 45%.
Thanks to its third-quarter earnings report, the memory company successfully turned a profit. The report isn't as bad as Wall Street feared. Micron is also calling for improved memory demand later this year, and all of these positive factors combined have changed the sentiment surrounding the stock.
Goldman Sachs is the latest firm to join the bullish bandwagon in anticipation of a move higher for Micron. Analyst Mark Delaney upgraded the stock to buy from neutral and raised his price target to $56 from $40. However, his reasoning doesn't sound very convincing.
Goldman Sachs is counting on a recovery in the storage industry
Delaney believes Micron shares will be driven by memory price trends, as he stated in a research note: "Importantly, we believe that earnings will be consistent with fiscal '20 Micron's stock price depends more on memory price trends and medium-term EPS expectations than on the other hand."
But a closer look at trends in the memory industry reveals that Micron's stock price is likely to continue if Delaney is right. go lower.
DRAMeXchange reports that manufacturers are stocking up on memory chips, fearing supply will be disrupted if Korean memory makers , Samsung, and Hynix run out of raw materials. If that does happen, Micron would be a huge beneficiary, as it has the third-largest memory market share behind its Korean rival.
Meanwhile, an unexpected power outage at a Toshiba manufacturing plant in Japan temporarily halted production, further disrupting supply.
The incidents reportedly caused DRAM prices to rise by 20% in the two weeks starting July 5, according to DRAMeXchange. But the memory price increases caused by these one-time events may not last long.
Industry revival won't be as easy as it sounds
The recent surge in memory prices may be short-lived, as oversupply is already widespread in the industry.
The excess inventory is caused by weak demand for PCs, smartphones and data centers this year. The smartphone market is not in good shape: IDC data shows that smartphone shipments fell by a worrying 6.6% in the first quarter of this year.
Gartner predicts that PC shipments will decline by 4.6% in the first quarter of 2019. This is the result of weak consumer demand and a shortage of CPUs ( central processing unit ).
So even if memory supply takes a short-term hit, manufacturers may have to channel oversupplied inventory before buying new memory chips. Therefore, Micron investors should keep in mind that the basis for the stock's current rally is unsustainable.
The company's next quarterly report is still some time away, so it's difficult to know whether the DRAM recovery has legs or whether it will fizzle out once short-term events subside. So while Goldman Sachs recommends betting that Micron shares will bounce back to $56 on improving memory market conditions, that doesn't seem wise.
Author of this article: Harsh Chauhan, Motley Fool, Things About Wall Street/ US Stock Research Agency (Public Account: meigushe) http://www.meigushe.com/ - aims to help Chinese investors understand the world and focus on reporting on the United States technology stocks and Chinese concept stocks . Friends who are interested in US stocks should follow us
