Micron stock rockets after Bernstein turns positive on memory industry

“[M]acro concerns have prompted a selloff, but a correction to the memory market, if any, won’t be prolonged & won’t change the structure,” Li wrote in his note to clients.

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Li isn’t yet sure how to quantify the macroeconomic risks to the memory industry, so he said that his model doesn’t currently include them. But he doesn’t expect the Russian invasion of Ukraine to have a major negative impact on supply or demand and doesn’t think a potential recession would profoundly hurt the sector.

“History shows slowing economies lead to earnings contraction but no longer than a year & won’t change the industry structure,” he wrote. “Even in the harsh scenario in which memory market plummeted by 35%, consolidation & improved profitability still kept operating margins at low-to mid-teens & kept suppliers from bankruptcy.”

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Were earnings contraction to occur, Li expects that the stocks “will face an upward trajectory one year from now even in this scenario, and will likely rebound from the recent selloff as the industry stays intact.” And if conditions end up more “benign,” the stocks could recover even more quickly, in his view.

Overall, he feels positive in looking forward. “Prices will go up later this year and sustain into CY2023, and reverse to a decline in CY2024,” Li wrote. “Supply discipline will keep the decline mild so that shipment increase still brings revenue & earnings growth then.”

The stock was up roughly 8% in Wednesday’s session. Micron shares are off about 19% from their record close achieved in January.