Micron Technology Inc. could continue to benefit from supply constraints in a bullish sign for its stock, according to an analyst.
BMO Capital Markets analyst Ambrish Srivastava upgraded Micron’s shares to outperform from market perform Wednesday on the assumption that demand could continue to outstrip supply into 2022, benefitting pricing dynamics. Shares are up 1.2% in Wednesday morning trading.
“We believe there is a fair amount of concern related to near-term pricing driven by inventory digestion in handsets in China and an eventual slowdown in PCs, and uncertainty around the longevity of the cycle in general,” he wrote. “While some concerns are valid, we see a vastly different scenario farther out.”
Srivastava expects the supply-demand imbalance to continue based on dynamics at both ends of the equation. On the supply side, he anticipates that the industry will remain disciplined on capital expenditures and that the lack of inventory on memory makers’ balance sheets at the end of 2021 will prove beneficial heading into 2022, when the industry could also do a meaningful push toward a higher-bandwidth type of memory product.
“We believe these dynamics will lead to a continued undercurrent for upward pressure on pricing,” he wrote.
In terms of demand, Srivastava is upbeat that momentum for server chips and 5G devices could “more than” make up for anticipated weaknesses in personal computers.
Srivastava boosted his target price on Micron’s stock to $110 from $90. Shares recently changed hands near $84.
Though Micron is due to report earnings after the closing bell Wednesday, Srivastava indicated that his upgrade is not a call on the upcoming results.
Shares of Micron have gained about 12% so far this year as the S&P 500 has risen 14% and as the PHLX Semiconductor Index has added 19%.
