Micron Technology’s (MU) stock will continue to be supported over the next two years by an inclining gross margin that isn’t expected to peak until at least mid-2025, UBS said ahead of the chipmaker’s fiscal second-quarter print.
The brokerage increased its price target on the stock to $120 from $95 and reiterated a buy rating in a note emailed Tuesday. UBS’s target values Micron at 2.5-times price to tangible book value, indicating that investors are willing to pay more than book value, the report showed.
The bank raised its multiple from 1.9-times amid the expectation that recent volatility will translate to Micron being able to “hold a higher multiple” as the cycle shows duration.
“We hear a lot of hand-wringing around valuation here but this is an output not an input and the stock has always continued moving higher alongside gross margin – which we don’t think peaks until at least mid (calendar-year) 2025,” analyst Timothy Arcuri wrote.
Micron’s fiscal second-quarter results are due on Wednesday. UBS foresees results that are biased toward the high end of guidance. Micron shares have gained roughly 10% year to date.
The brokerage now expects Micron to post a per-share loss of $0.21 for the second quarter, smaller than its prior estimate of a $0.29 loss. The consensus is for a loss of $0.26, according to the report. UBS upped its revenue estimate to $5.4 billion from $5.3 billion, putting it ahead of Wall Street’s $5.33 billion view.
All eyes will be on the somewhat moderating mobile and PC demand backdrop that’s occurring after an inventory snap-back and likely impacting Micron’s dynamic random access memory, or DRAM, business, UBS said.
On a positive note, the company’s server business is seeing upside as capacity allocations to Micron’s high-bandwidth memory artificial intelligence chip amid heightened demand, the brokerage wrote. The production shift is “to some degree starving” double data rate computer chips and supporting prices, Arcuri said.