Micron Technology (NASDAQ:MU) and Western Digital (NASDAQ:WDC) slumped on Wednesday as investment firm Mizuho downgraded both companies, citing recent checks showing "steepening price declines" heading into the next quarter and first half of next year.
Analyst Vijay Rakesh lowered his rating on both Micron Technology (MU) and Western Digital (WDC) to neutral from buy, while also noting that the data center and server markets are starting to show weakness, especially with "with softening demand in China/Europe and slowing CPU/GPU ramps."
On concerns over the data center, Rakesh also noted that at Nvidia's (NVDA) analyst day, the company said that its Hopper H100 would start to ramp in a "couple of months," implying continued weakness for both Western Digital (WDC) and Micron (MU).
"While both [Micron] and [Western Digital] have executed well with a robust and industry-leading Memory portfolio and improving 22TB [hard disk drive], we see slowing consumer/ hyperscale demand and high inventory as headwinds," Rakesh wrote in a note to clients. The analyst also lowered the price targets on Micron (MU) to $56 from $75 and Western Digital (WDC) to $40 from $62, respectively.
Rakesh added that the downgraded may be late in terms of timing, but it's likely that a weak macro environment, along with "weak consumer demand, high inventory, and continued supply growth imply more downside risk over the next 4-6 months."
The price declines come in both the dynamic random access memory, or DRAM, markets, as well as NAND memory prices. Rakesh also noted that Chinese memory chip maker Yangtze Memory Technologies is "gaining share" and adding "significant capacity" with potential to ramp into the iPhone 14.
Earlier this month, several GOP lawmakers warned Apple (AAPL) about potentially using Yangtze Memory Technologies chips inside the iPhone and the political ramifications if the tech giant should choose to do so.
The analyst lowered his estimates on both Micron (MU) and Western Digital (WDC) across the board. For fiscal 2023, he now sees Micron (MU) generating $24.5B in revenue and $3.59 per share in earnings, down from $25.2B and $5.05 per share. For fiscal 2024, he expects the company to generate $29.7B in revenue and $5.92 in earnings per share, down from a previous outlook of $30.2B and $8.12 per share.
For Western Digital (WDC), he now expects fiscal 2023 results to be $14.9B and earnings of $1.56 per share, down from a prior estimate of $15.4B and $2.36 per share share. For fiscal 2024, he expects $16.6B in revenue and earnings of $2.55 per share, down from a prior estimate of $17.9B and earnings of $4.87 per share.
In a separate note on Wednesday, Wells Fargo analyst Aaron Rakers also lowered his estimates on Micron (MU), as he expects the next quarterly results to be "very negative," citing continued weakness in both the DRAM and NAND markets.
On Tuesday, Deutsche Bank downgraded Western Digital (WDC), noting it has an "uncertain" path towards recovery.
Analysts are largely cautious on Western Digital (WDC). It has a HOLD rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates WDC a HOLD.