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Micron Technology's (NASDAQ:MU) stock rose about 3% premarket on Tuesday after Citi Research reiterated its Buy rating on the shares and maintained its $95 price target.
Micron's stock has underperformed so far in 2024. The shares are up 6% on the year, but below the 12% gain in the SOX index for three reasons in Citi's view — negative comments by Rambus; increased capex comments from equipment makers stoking fears of overcapacity; and high valuation. A team of analysts led by Christopher Danely said that they disagree with all three.
Negative comments by Rambus (RMBS), however, Citi's checks indicate the opposite. On Rambus' earnings call, the company said that they expect softness in the server market to persist into the first half of '24. Citi's channel checks suggest Dynamic Random Access Memory, or DRAM, order rates have increased from the server end market at both Micron and Samsung.
The analysts added that higher DRAM spending narrative from equipment makers — not enough. Applied Materials (AMAT), Lam Research (LRCX) and ASML (ASML) all mentioned upside from the DRAM space on their conference calls. While Citi expects 2024 DRAM capex to rise from current levels, even if it increases 20%, it would still be 30% below the peak of 2022.
Lastly, Micron is trading at peak multiple but the company's valuation still lags group and should go higher. One concern Danely has heard is that Micron's valuation is back to previous peak levels of about 8X-9X a peak EPS estimate of $10.
Danely said they would note that the average multiple for a semiconductor stock rose 41% in 2023 and the SOX is at the highest valuation since 2000. Micron's stock valuation has actually gone down versus the group.
Citi reiterated its Buy rating on Micron (MU) and maintained its price target of $95, above its historical average due to the DRAM upturn and expectations of continued upside.
Micron (MU) has a Hold rating at Seeking Alpha's Quant Rating system, which consistently beats the market. The Seeking Alpha authors' average rating is also Hold but the average Wall Street analysts' rating is more positive with a Buy.
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