Micron Technology is trending after Deutsche Bank upgraded the stock to Buy from Hold and increased its price target to $60 from $50.
The bank’s analyst Sidney Ho cited strengths in the DRAM market for the upgrade. Ho said that said that he acknowledges the risks that the recent demand strength is driven by inventory accumulation, but the current trend will nonetheless help the company in the seasonal soft demand in the first half of 2021.
However, the analyst said that DRAM demand for smartphone and server OEMs could "tighten again" in the second half of 2021.
Micron Technology recently announced its quarterly results, which showed the company nearly doubled its profit, adding more than $1 billion in revenue as compared to the same period last year, thanks to a strong demand from Cloud and consumer sectors.
However, the company said it expects adjusted fiscal first-quarter earnings of 40 cents to 54 cents a share on revenue of $5 billion to $5.4 billion, compared to the Street’s forecast of 66 cents a share on revenue of $5.27 billion.
The company also said it expects demand in the DRAM sector to grow by 20% in 2021. The demand for NAND, which is usually used on smaller devices like cameras, is expected to grow by 30% in 2021, according to Micron Technology.
In the fiscal fourth quarter, Micron Technology’s net income came in at $988 million, or 87 cents a share, compared with $561 million, or 51 cents a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation expenses and other items, came in at $1.08 a share, compared with 56 cents a share in the same quarter last year.
Given a hopeful situation of the market demand and favorable conditions worldwide, Micron Technology could benefit enormously in 2021. In a recent interview, Micron Technology’s CBO Sumit Sadana said that the company will begin the production of second generation of a key flash storage product. This product will help the company with cost cutting and will increase margins.
Micron Technology’s new video memory technology, which was used by Nvidia for its Ampere graphics chips, has a heavy manufacturing cost, according to Sadana. That affected Micron Technology’s margins in the recent quarters, but the company will be able to solve the problem in 2021.
Another upcoming catalyst for Micron Technology stock is 5G. Research shows that 5G smartphones will drive the demand for DRAM in the market, as companies will need more DRAM chips for 5G smartphones amid the need for higher-resolution images, video, and intensive gaming. This will benefit Micron Technology and other mobile chipmakers.