Why Micron Stock Dropped Again Tuesday
Key Points
TD Cowen raised its price target on Micron yesterday, and Deutsche Bank seconded the emotion today.
Micron stock dropped both days, and worries about overproduction are starting to surface.
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For the second day in a row, Micron (NASDAQ: MU) stock fell on Tuesday, down 3% through 11:45 a.m. ET. And for the second day in a row, Micron stock fell on Tuesday... despite being recommended as a "buy" on Wall Street.
Yesterday, if you recall, analysts at TD Cowen set a $600 price target on Micron stock, predicting a 55% profit as the company rode a rising tide of DRAM riches to earn as much as $60 a share. Today, it's Deutsche Bank's turn to recommend Micron -- and have its recommendation rejected by investors.
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Why Deutsche Bank loves Micron stock
"Unprecedented" tight supplies of DRAM memory chips combined with high demand for DRAM and HBM (high bandwidth memory), says Deutsche Bank analyst Melissa Weathers, are "favorable for MU," and imply both higher prices for the company's chips -- and fatter profits for Micron.
Weathers is somewhat less optimistic than TD Cowen's analyst was yesterday. However, she's still forecasting Micron to earn $46.50 this year, and she values the stock similarly to Cowen, arguing that a valuation of 11 times earnings is appropriate for the semiconductor stock: $500 a share.
Is Micron stock a buy?
And yet, at the same time as Weathers recommends buying Micron and raises her price target on the stock, she also gives the same warning that Barron's highlighted yesterday:
There's a risk that "additional supply being brought on by competitors" could cause "a deterioration in memory pricing" -- derailing Micron's hopes for higher prices, sales, and profits. With Samsung reportedly ramping up HBM production, this is a risk investors need to bear in mind. Just because Micron's doing well today doesn't mean the semiconductor industry has become any less cyclical!
And even at just 12x earnings, Micron stock is not without risk.
Should you buy stock in Micron Technology right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.
