It’s been a rollercoaster of a summer for Micron (NASDAQ: MU)
investors, who’ve had to watch their shares fall 30% and then rally 30% in the past two months alone. But there are signs that the worst of the volatility might now be behind them. This will be a welcome turn of events for all but the bears, as 2022 has been a year to forget for the most part. A combination of supply chain issues and soaring inflation have acted as major headwinds for an industry
that was among the better performing in 2021.
But having put in what’s looking more and more like a low at around $50 last month, their shares are getting into a solid motion of setting higher highs and higher lows. And just last week, the team over at Citi came out with a bullish update. They noted the company has shown the three signs of a “classic bottom”
: they’ve lowered its capex spending; shares are trading near trough valuation and most of its downside is already in the consensus estimates.
This final point was based on the weak forecast for the fourth quarter that management had already shared earlier this month, due to the aforementioned macroeconomic and supply chain issues. Citi analyst Christopher Danely might have cut his estimates and lowered his price target to $75 from $80, but he firmly reiterated his buy rating on Micron shares.
This bullish yet still kind of cautious tone was echoed by Danely’s peers over at Raymond James. They trimmed their rating on Micron last week from Strong Buy to Outperform, while their price target was moved back to $65. Analyst Melissa Fairbanks noted that while the long-term picture is still intact due to several secular trends, the near-term could be rocky.
In a note to clients after management issued that weak forecast he wrote that "this morning's press release called out macro conditions and supply constraints leading to a 'broadening of customer inventory adjustments,' leading to a steeper cut in bit shipments and margins than previously thought. However, given the fact that shares are off roughly 5% on the news and 15% above its 52-week low, investors may be taking the news in stride. We believe investors may view this as something of a clearing event, providing downside support, with significant room for upside as supply rebalances in fiscal 2023”.
The message here is clear. Short term headwinds remain, but so too does the industry and the company’s longer term potential. We need only look at how well both performed when there were more tailwinds than headwinds in recent years to get a sense of what the upside potential is. Fellow semiconductor stock Nvidia (NASDAQ: NVDA) has been going through much of the same motions, with Citi also coming out bullish on them this month. In a list of their top 30 most attractive stocks, Nvidia was #3 on the list. This is a decent bellwether for the likes of Micron and other names in the industry. Interestingly, it was Micron that represented semiconductors on a similar list from UBS at the end of July.
From a technical perspective, there’s a lot to like about them right now. That $52 level brought about a serious bounce and shares haven’t looked like they’ve wanted to go back down there since. There’s now some consolidation starting to happen in the mid-$60s which to be fair is exactly what the doctor would have ordered after they experienced a 50% haircut since the start of the year.
It’s looking more and more likely that the worst-case scenarios are already priced into the share price, which means there’s a ton of upside potential that can be unlocked by any one of several surprise updates that could hit the wire in the second half of this year. Marketbeat rates them
a “Moderate Buy” right now with a forecasted upside of some $40%, and this should be enough to justify a close look from anyone keen to get exposure to what will still be one of the hottest industries of this decade.
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