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Micron stock spikes even as semiconductor recovery gathers steam

The steady improvement in the performance of Micron (MU) shares since the beginning of the year, after staying in the bear market territory for several months, could be seen as an indication that the pricing pressure in the semiconductor industry is finally easing. Though the company was cautious while issuing its third-quarter guidance, which fell short of expectations, it hinted at getting back on track by the second half of the year.

Extending the ongoing uptrend, the stock rose around 5% in early trading Friday, adding to the speculation that the demand for DRAM chips is improving. Earlier, unconfirmed reports suggested that Amazon (AMZN) is looking for alternatives for bulk supply of chips after its tie-up with the current supplier ran into trouble.

The stock rose around 5% Friday, adding to the speculation that the demand for DRAM chips is improving

Micron will continue to be a hot pick in the coming weeks as it may take some time for memory prices to finally bottom out. Considering the company’s dominance in the DRAM-NAND memory market, the stock will gather strength once the market bounces back later this year. As of now, there is a great deal of optimism about the management’s claims of a rebound in the second half, especially when it comes after the company’s dismal performance in the second quarter.

This week, RBC Capital started the coverage of Micron with an impressive outperform rating, with the analyst echoing Micron’s view that chip prices are set to recover later this year. At $50, RBC’s price target on the stock is 26% above the current level.

In the second quarter, all the key business segments registered negative growth, resulting in a 21% fall in Micron’s revenues. Hurt by the poor top-line performance, the company’s profit nearly halved year-on-year. Though the outcome was still better than the estimates, the management guided the third-quarter numbers below consensus.

Micron shares fell 21% in the past twelve months. After slipping to a one-year low in December last year, the stock rose steadily and has stayed on the recovery path, hovering near the $40-mark.

 

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