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Memory Chipmakers Rally as Analysts Grow Confident on Rebound

Analysts see a “once in a 4 year opportunity” to buy memory at the bottom of the cycle.

Ryan Vlastelica (Bloomberg) -- Semiconductor companies that focus on memory-related chips rallied on Monday, as optimism continued that the product category was poised for a rebound.

“We believe we are just now entering another recovery cycle, and see more upside as DRAM price recovery begins in earnest,” wrote Charles Park, an analyst at Mizuho Securities who was referring to one of the two major types of memory chips, along with NAND products.

The firm sees a “once in a 4 year opportunity” to buy memory at the bottom of the cycle, adding that “an appeal to investing in the memory sector is the potential for a significant share price increase.” According to the firm, shares of Micron Technology “rose 6-7x each time over the past three recovery cycles.”

Shares of Micron jumped as much as 6.1% on Monday and were trading at their highest level since mid-2018. Western Digital Corp. gained as much as 7.4%. Both were on track for their fifth straight positive session, and both outperformed the broader Philadelphia Semiconductor Index, which rose 1.5% to record levels on Monday.

The pair’s outperformance has been a trend in the past six months. Over that period, Micron has soared almost 65%, while Western Digital is up more than 55%. The industry benchmark has gained about 35% over the same period.

In addition to Mizuho’s comments, both Western Digital and Micron were upgraded at Susquehanna Financial Group on Monday, with the firm citing higher confidence in a recovery for NAND prices. Separately, Morgan Stanley raised its Micron price target, writing that there was “clearly improvement” in the memory space, adding that it was “likely to sustain for a quarter or two.”

Longbow Research, which has buy ratings on both Micron and Western Digital, wrote that its latest checks on memory products were “mixed-to-positive, reflecting a continued rebound in NAND fundamentals and a recent stall in DRAM.” That DRAM headwind, analyst Nikolay Todorov wrote, “will be relatively short-lived,” as spot prices for both DRAM and NAND “are showing signs of inflection.”

According to data compiled by Bloomberg, more than 65% of Micron’s 2019 revenue was derived from DRAM products, while an additional 29.7% came from NAND products.

The growing optimism comes ahead of the Dec. 18 release of Micron’s first-quarter results. Western Digital’s next quarterly report is expected to come in late January.

The comments were merely the latest in a series of optimistic commentary about the product category. Last week, RBC Capital Markets wrote that it was “officially calling the bottom on memory pricing,” expecting the sector would be past inventory issues by the end of the year.

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