Micron's stock is among the S&P 500's best this year. Why it just got upgraded.

By Emily Bary

Baird sees 'meaningful upside opportunities' for Micron and notes a recent pullback in the stock

Micron Technology Inc. shares have started the year strong, with a 34% surge so far in 2024.

So why is Baird analyst Tristan Gerra upgrading the memory-chip company's stock now? He admitted the call is "a bit late" but noted that Micron shares (MU) have pulled back recently - they're down just over 10% from their record-high close in early April.

"We see meaningful upside opportunities ahead for Micron notably given the stock's recent pullback, in discrepancy with incrementally positive trends unfolding in DRAM per our recent channel checks," he wrote, referring to dynamic random-access memory.

That creates the backdrop for a "somewhat unprecedented outlook for memory over the next 12-18 months," Gerra added, lifting his rating on Micron shares to outperform from neutral and upping his price target to $150 from $115.

Read: AMD is the latest company to show that AI is an expensive proposition

In Gerra's view, DRAM pricing is stronger than the channel expects. There are also ways for Micron to capitalize on strong pricing trends on its own, such as by seeing customers ramp inventories of DDR5 memory offerings.

He said customers "will maintain the 15% price premium of DDR5 over DDR4 in the next few quarters."

Micron is also poised to benefit from rising demand for high-bandwidth memory, which is increasingly of interest in the artificial-intelligence boom.

High-bandwidth memory looks like a "new supercycle in formation, with unprecedented gross margin upside potential for Micron, reminiscent in our view of the early days of the NAND ramp," Gerra noted. Micron's HBM3E product could yield a 60%-plus gross margin, and the company could pick up a high-single-digit share of the market by the end of this calendar year.

Gerra said now sees Micron's stock as one of his top picks in the semiconductor sector. The others? Shares of Nvidia Corp., Broadcom Inc. and SMTC Corporation.

Micron shares were up nearly 3% in premarket action Monday. The stock is already one of the S&P 500's SPX best this year - ranking ninth as of Friday's close.

See also: Nvidia's stock has had a killer run. Why it's still Morgan Stanley's top AI-chip pick.

-Emily Bary

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05-06-24 0741ET

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