This past summer has been a bit of a mixed bag for shares of Micron (NASDAQ:MU), the $55 billion chip maker out of Boise, Idaho. While anything with even a hint of tech seemed to log green day after green day, Micron shares were for the most part flat from April through July.
If investors were starting to get impatient with the lackluster performance, even while the NASDAQ was hitting all-time highs, it, unfortunately, got worse.
Tough Summer
In August, a downgrade from Deutsche Bank (DE:DBKGn), in tandem with a weakened revenue forecast, took shares down 15% in a single week and had them back trading at March levels. Seeing tough quarters ahead for the company, Deutsche knocked shares down from a Buy to a Hold rating. Analyst Sidney Ho wrote at the time that he was now "more negative on the supply-demand balance for the memory sector over the next several quarters" and that demand had "dropped off sharply since mid-June".
Shortly after that, the folks over at Mizuho followed their Deutsche peers with similar sentiments, noting the likelihood for a “near term soft patch, driven by weaker enterprise demand”. They stopped short of downgrading shares, choosing instead to maintain their Buy rating and noting that the company was well-positioned for a rebound in 2021.
As we leave the dog days of summer behind us and step into the fall, it’s starting to look as if that near term soft patch has been crossed and as if the rebound is starting.
Brighter Days Ahead
On Monday, Goldman Sachs (NYSE:GS) got Micron’s week off to the right start with a solid upgrade from Neutral to Buy. They slapped a fresh $58 price target onto shares which implies about a 20% move to the upside from where they closed out Monday’s session. Were they to hit that level in the coming weeks, it would mark their post-COVID high watermark and put them in a breakout to 52-week highs.
Goldman analyst Toshiya Hari said in a note to clients that the "ongoing weakness in DRAM and NAND pricing will be short-lived," and that the recent weakness in shares "indicates that the near-term pricing dynamics are well-understood." The risk / reward profile that Goldman has calculated certainly makes an enticing argument to any bulls still on the sidelines. To the upside they forecast over 180% potential returns, while the downside is less than 50%.
Strong Upside
The upgrade was enough to send shares up more than 6% and to their highest level in a month. Having downplayed their prospects for the rest of the year, if the company can now manage to deliver some surprising upside news, there’s a big catch up play on the cards.
Compared to the benchmark NASDAQ index which is made up of the biggest names in tech, Micron has been playing second fiddle since March. Since the middle of February, right before equities plunged, through today, the NASDAQ has managed to rally more than 20%. And that includes this month’s 10% drop. Micron stock on the other hand is down around 20%.
For those looking to find some value in high growth tech names, you could do worse than considering Micron. Recent weakness appears to have been focused on short term headwinds which are starting to dissipate. Wall Street has already begun to identify a ton of upside with plenty of catalysts for investors to look forward to.
