Micron and Western Digital Stocks Are Rising. Why This Analyst Thinks They’re a Buy.

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Shares of memory chip makers Micron Technology and Western Digital were climbing in premarket trading after an analyst at Mizuho Securities raised the stocks to Buy, citing improved demand for memory chips.

Micron (ticker: MU ) was rising 2.8% to $86.20. Western Digital ( WDC ) rose 3.6% to $59.

Mizuho Securities analyst Vikay Rakesh had downgraded both stocks to Neutral in October after forecasting a soft demand outlook for memory chips during the first half of the companies’ fiscal years.

New data indicated actual demand was improving across PCs, servers and handsets that “could support an improved pricing,” prompting Rakesh to raise the stock to Buy and boost his price targets. The new target for Micron is $95, up from $75, and the new target for Western Digital is $75, up from $55.

Rakesh estimates that first-quarter PC and netbook builds will only decrease between 0% and 5% quarter over quarter, up from previous estimates that they would fall between 10% and 15%. PC demand alone could be up as much as 5% year over year, a shift Rakesh said was surprising given Wall Street consensus that demand would be down between 2% and 3%.

Requests for memory chips in China also could improve compared to previous estimates, as well as orders from server hosts like Amazon ( AMZN ) and Google (GOOGL). An additional boost could come from upcoming investments in the metaverse and virtual reality.

Micron may be a new darling among analysts. Last week, Evercore ISI analyst C.J. Muse added Micron to his list of top stock picks, anticipating a return to earnings growth next year.

In his note, Muse wrote that while shares of chip makers like Micron have lagged behind the PHLX Semiconductor index, or SOX, since early June, the tide may be shifting.

“We believe negative sentiment was due to investor concerns over the sustainability of PC, handsets, and cloud demand, which was also compounded by DRAM spot pricing that began to flatten out in May/June 2021,” Muse wrote.

Write to Sabrina Escobar at sabrina.escobar@barrons.com