SOX index to closes just short of previous high of 1,445.90
Micron Technology Inc.’s stock surged for its best day in more than a year Thursday, leading chip stocks to a record high as the memory chip maker took what analysts considered to be a more realistic view of the market and sought to curb production.
Micron MU, +9.62% shares finished up 9.6% at $43.99, after touching an intraday high of $44.21, after the company reported quarterly earnings late Wednesday, gave a sobering forecast for the current quarter and pledge to idle 5% of chip production. The last time shares had a better one-day percentage gain was Feb. 6, 2018, when the stock jumped more than 11%, and finished at their highest price since Oct. 4, 2018, when shares closed at $44.16, according to FactSet data.
Meanwhile, the PHLX Semiconductor Index SOX, +3.50% surged 3.5% and closed at 1,441.83, just short of its record of 1,445.90 set on March 12, also helped along by a 8.5% rally in shares of Advanced Micro Devices Inc. AMD, +8.52% a 5.5% gain in Nvidia Corp. NVDA, +5.47% and a 1.5% rise in Intel Corp. INTC, +1.52%
In comparison, the S&P 500 index SPX, +1.09% closed up 1.1% and the tech-heavy Nasdaq Composite Index COMP, +1.42% rose 1.4%.
Following Micron’s results and outlook, eight analysts hiked prices on the stock while three lowered their targets. Of the 33 analysts who cover Micron, 19 have buy or overweight ratings, 13 have hold ratings and one has a sell rating, with an average price target of $49.28 compared with an average $47.65 before the earnings report.
On a conference call after releasing fiscal second-quarter earnings, Micron Chief Financial Officer David Zinsner said the company expected adjusted third-quarter earnings of about 85 cents a share on revenue of $4.6 billion to $5 billion.
Analysts polled by FactSet had forecast earnings on average of $1.18 a share on revenue of $5.29 billion, and by Thursday, the consensus was down to 84 cents a share on revenue of $4.82 billion.
Also, Chief Executive Sanjay Mehrotra said Micron would idle 5% of DRAM and NAND “wafer starts” while waiting for expected data-center growth to resume in the second half of 2019. DRAM, or dynamic random access memory, is the type of memory commonly used in PCs and servers, while NAND chips, the flash memory chips used in USB drives and smaller devices such as digital cameras.
Before the earnings report, many analysts had been expecting a below-consensus outlook before any turnaround in the memory-chip market, which has been mired in an oversupply glut for about a half a year now.
BMO Capital analyst Ambrish Srivastava, who has an outperform rating and a $50 price target, said, “Not that we would know anything about it but we have heard that hangovers can be tough.”
“Memory fundamentals are plain nasty,” said Srivastava. “Visibility is limited, how can it be anything but, given the tight supply/ASP driven buying frenzy from last year? However, we think Micron is taking all the right steps.”
Cowen analyst Karl Ackerman, who has an outperform rating and raise his price target to $46 from $40, said: “While the demand environment in the second half remains opaque, guidance was no worse as some feared.
Mizuho analyst Vijay Rakesh, who has a buy rating and raised his price target to $47 from $44, he was maintaining his buy rating because of the company’s free-cash flow, strong balance sheet and expectations of a second-half of 2019 pickup.
MKM Partners analyst Ruben Roy, who has a buy rating and raised his price target to $50 from $44, also said “management continues to execute well in a challenging environment,” and sees the May-ending quarter as an earnings though.
“We continue to remain positive on the longer-term outlook for memory given content is likely to increase as emerging applications such as AI, autonomous driving, machine learning, and data analytics/data science continue to evolve,” Roy said. “Within this backdrop, we continue to see industry participants delivering much improved levels of profitability relative to previous cycles.”
Morgan Stanley analyst Joseph Moore, who has an equal-weight rating and a $32 price target, was more skeptical. While he also said Micron is “executing well in a tough environment” he’s “cynical” about a recovery in the second half of the year.
“We do not think that seasonality+snapback will be enough for supply/demand to clear, and model cautiously for 2h; record inventories & production idling support that view,” Moore wrote.