Micron Technology shares have had a tough run lately. Still, Wall Street analysts think the stock could bounce back if the market recognizes how serious the current memory chip shortage is.
Shares dropped 0.5% in early trading and are down 12% over the past month, now sitting well below their late June peak. Investors are worried about whether Micron’s high profit margins can last in an industry known for its ups and downs.
Not much has changed in Micron’s business, and memory prices are still rising. Wall Street expects earnings to grow for at least the next three years, even with higher AI-related spending. According to FactSet, the stock now trades at a forward price-to-earnings ratio of less than six.
Mizuho sees the recent drop as a chance to buy and kept its positive outlook on the stock after meeting with Micron executives. The firm believes the memory chip market will stay tight until at least 2027, with no major new supply expected before 2028. This means the current supply-demand gap will likely continue for now.
Mizuho values Micron at 5.3 times its expected 2027 book value, compared to the current forward price-to-book ratio of 3.4, according to FactSet. The firm thinks investors will feel more confident if Micron can keep gross margins above 80%. They see this as possible because of the company’s new long-term supply deals, which include higher prices for future products.
A key question is how quickly supply will increase, especially from Chinese memory chip makers like ChangXin Memory Technologies. These companies still have limits on selling to U.S. customers or providing advanced hardware. However, reports say Apple has asked for permission to buy memory from the Chinese company because of ongoing supply shortages.
Mizuho says worries about Chinese competition are overblown and should fade as it becomes clear that the Chinese manufacturer will likely focus on its home market. For now, it has limited ability to compete in high-bandwidth memory.
