Proactive Investors - Analysts at UBS told investors to “focus on the narrative over the noise” as they reiterated their 'Buy' recommendation for Micron Technology (NASDAQ:MU), the biggest US memory chip maker.
In a note to clients, UBS said the China chip ban is adding noise and could elongate Micron’s recovery, but bits are growing again, the most important metric for the stock as it leads everything in the company’s bottom line.
China's cyberspace regulator said on May 21 that Micron had failed its network security review and that it would block operators of key infrastructure from buying from the company, prompting it to predict a revenue reduction.
UBS was unfazed by the ban as there were too many good things in the offing.
“We expect AI to ultimately drive disproportionate growth in memory as supply tightens and cloud customers have to find more budget to support much higher memory BOM in AI servers,” said the UBS analysts.
“With the memory cycle having now turned and the narrative in semis now seeming more about 2025 than 2024, it is hard not to really like this stock for what could and should be a very strong year for memory industry revenue and (potentially) profits.”
UBS noted that on top of this, AI is requiring many new advanced memory technologies, which argues for a closer partnership with customers and more certainty in return on investment for DRAM suppliers.
“We are less excited about NAND, but we think it likely won't be enough of MU's operating profit (OP) dollars to drag margins down too much as the recovery plays out,” said the analysts.
“Lastly, while it is hard to predict geopolitical outcomes, MU's commentary that half of its 25% revenue exposure to China is at risk from this ban sets what we think could end up being an artificially low base as the situation evolves over the next few quarters. Net, our CY24/25E estimates come down a touch and our PT remains $76. We reiterate our 'Buy' rating.”
Micron shares were down nearly 3.8% at $64.50 in afternoon trade on Thursday.