Semiconductor stocks have been on a roll in 2020. The SOX – the industry’s overall barometer index – boasts year-to-date gains of 40%, way above the 11% accrued by the S&P 500.
Micron (MU), though, has made a sharp swing from red to green only recently; The stock is up by 40% over the last three months.
Deutsche Bank analyst Sidney Ho puts the stock’s recent rally down to “a rotation into ‘value’ names,” with the market looking ahead to a world beyond the pandemic. With the year reaching its end point, the 5-star analyst expects the momentum to continue, and believes Micron is “well positioned for CY21.”
Ho reiterates a Buy rating on MU shares while raising his price target from $60 to $70. The new figure implies a 10% upside from current levels. (To watch Ho’s track record, click here)
The semiconductor industry is cyclical in nature, subject to the whims of supply and demand dynamics. While Micron has slogged its way through this year’s down cycle, the latest industry checks suggest to Ho that DRAM pricing is likely to hit an “inflection point in 1Q.”
Strong Demand is on the rise in several key markets, among them data centers, smartphones, graphics (both GPU and game consoles), and cryptocurrency. Additionally, with inventory levels declining, previously weak enterprise demand is showing signs of improvement.
Moreover, there is a sense the ban on key customer Huawei might be lifted. The Chinese telecom giant is a large revenue generator for Micron, but the company has been unable to sell product to Huawei since the ban came into effect in September.
But that might change soon. “The potential for MU to resume shipment to Huawei has improved given several semiconductor companies have recently received export licenses from the U.S. to ship to Huawei,” Ho noted.
Overall, the analyst concluded: “As the global economy starts to recover from the COVID pandemic, we view MU as a solid ‘recovery’ pick as demand drivers (data centers, 5G smartphones and gaming) accelerate,” the analyst concluded.
Micron has robust support amongst Ho’s colleagues. With 17 Buys, 5 Holds and 1 Sell, the stock has a Moderate Buy consensus rating. However, the recent strong rally pushed the stock price slightly above the average price target of $62.85. (See Micron stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.