Micron (NASDAQ:MU) shares dipped on Thursday as investors reconsidered their positions after a former bull unexpectedly turned bearish.
BNP Paribas analyst Karl Ackerman delivered a sharp double downgrade, shifting his rating on MU from Outperform (i.e. Buy) to Underperform (i.e. Sell). Along with this downgrade, Ackerman slashed the price target from $140 to $67, forecasting a potential 26% decline from the current share price. (To watch Ackerman’s track record, click here)
“While some investors correctly anticipate downside risk to near-term results, we think Micron will underperform AI peers through ’25 as HBM capacity oversupply leads to a faster than anticipated market correction of conventional DRAM ASPs. We are 34%/45% below Cons CY25/CY26 EPS,” said Ackerman, explaining his new stance.
Simply put, Ackerman thinks DRAM producers’ HBM (high bandwidth memory) plans are overly optimistic, expecting a glut of supply on not enough demand.
To support the buildout of advanced DRAM nodes (1b) and HBM packaging tech, all DRAM manufacturers will be raising capital expenditures by at least 50% in CY2025. Since HBM consumes around 2 to 3 times the wafer capacity of standard DRAM for the same bit volume, an oversupply of HBM could lead to a 6% surplus in conventional DRAM and a steeper-than-anticipated decline in DRAM average selling prices (ASPs) next year.
Still, double downgrades aren’t very common, so it’s fair to wonder why one is merited here? Well, for starters, according to Ackerman’s analysis of previous DRAM cycles, he expects the current ASP up-cycle to peak in the November quarter.
Additionally, while Ackerman notes that the stock has already substantially retreated from June’s peak (by 43% right now), assessing DRAM ASPs in relation to Micron’s tangible book value (TBV) and share price, Ackerman thinks that his new $67 price target might still actually be too high.
“We see downside to NovQ results and anticipate further rating downgrades and EPS cuts to weigh on the stock,” the analyst summed up, claiming the “risk-to-reward at current level remains unfavorable.”
So, that’s where the bear thesis on Micron begins, but no one on Wall Street appears ready to join just yet. Elsewhere, the stock claims an additional 25 Buys and 2 Holds, for a Strong Buy consensus rating. Meanwhile, the $161 average price target remains an optimistic one and implies shares will post growth of ~84% in the months ahead. (See Micron stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
