Micron’s down-cycle bottom could be in, Wells Fargo reiterates its Overweight rating

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By Davit Kirakosyan

Wells Fargo provided a review on Micron Technology (NASDAQ:MU) ahead of the upcoming Q2 earnings announcement on March 28, reiterating its Overweight rating and $70.00 price target.

“Weaker-than-expected pricing + a 'material' inventory write-down (est. $1.5-$1.9B) will almost certainly result in alarmingly weak reported MU F2Q23 results and F3Q23 guide,” said the firm, adding that now it expects the TBV to decline to $35-$40 per share (vs. approximately $44 per share exiting Q1/23).

The firm believes that investors are starting to acknowledge that the market is nearing a fundamental bottom, following “what has been an unprecedented downturn (note y/y bit ship declines).”

The company expects DRAM bit demand to increase in the low-teens range year-over-year in 2023, but Wells Fargo said its analysis suggests that it could be in the low/mid-single digit range. However, as DRAM bit supply is expected to decline in the low single-digit range year-over-year, the firm anticipates a positive alignment of supply and demand in the second half of 2023, with the focus now shifting to material recovery into 2024.

Regarding NAND bit demand, Micron expects it to grow by approximately 20% year-over-year, which requires estimated flattish bit supply growth in order to restore normalization. “While we see support for MU's expectation of flattish capacity bit supply, our model leaves us to believe MU could reduce its 2023 bit demand expectation — we see low/mid-teens y/y as more realistic; heavily dependent on NAND price elasticity driving increased avg. content per device (most notably in enterprise SSDs),” said the firm.

The firm cut its Q2/23 and Q3/23 revenue/gross margin/EPS estimates from $3.77 billion/9.3%/($0.57) and $3.78B/5.1%/($0.67) to $3.62B/(35%)/($2.03) and $3.58B/ (6.9%)/($1.08), respectively.