What happened
Shares of computer memory maker Micro Technology (MU +4.44%) climbed 5.8% through 10:30 a.m. EDT Tuesday morning after analysts at Swiss megabank UBS raised their price target on the stock to $120 per share.
"UBS sees meaningful upside to NAND demand and pricing," reports StreetInsider.com today, "and now expect NAND contract pricing +5% q/q in 2Q (was -7%), +10% q/q in 3Q (was -7%), and +2% in 4Q (was -5%)."
Image source: Getty Images.
So what
More than just an indication that things are "getting better," UBS' report is a complete reversal of sentiment about where computer memory prices are heading -- from prices falling over the next three quarters to prices rising in all three quarters.
UBS sees improving demand for solid-state drives (SSD) in both PCs and smartphones this year, and also "some recovery in server flash arrays." In total, UBS estimates that the aggregate amount of increase of demand for NAND flash memory this year ("bit demand growth") will be greater than 40%, and that this growth will continue into 2022 (up 3%).
Now what
As good as all of this sounds for Micron, it gets even better. UBS predicts that DRAM memory prices will also rise this year, up 15% in Q2, 13% in Q3, and 10% in Q4 -- and that that trend won't peak until the second half of 2022. With demand especially in PCs and servers, the analyst sees total bit demand growth of 21% this year.
Micron stock investors can only hope UBS is right about this, because tremendous growth is exactly what's needed to sustain Micron's valuation at its current 35 times trailing earnings. Higher prices would also help reverse Micron's very weak free cash flow of late, which barely broke even last year and has run negative in each of the past two reported quarters.
Absent that growth, it's hard to justify the valuation of a stock that's more than doubled over the past year. With the growth, the stock just might be worth what it costs.
