The memory market's decline has sent shares of Micron Technology (MU 1.60%) tumbling this year, but one analyst believes that the American semiconductor manufacturer could make a solid comeback in 2023 and deliver healthy gains to investors.
Charles Park of Loop Capital recently initiated coverage on Micron stock. The analyst has a buy rating with a price target of $70, which points toward a 25% upside from current levels. With shares of the memory specialist down 40% in 2022 so far, Park believes that Micron stock presents an attractive risk-reward opportunity right now.
But should investors take the plunge and buy Micron Technology, especially at a time when the memory market could continue to remain under pressure due to declining demand from the smartphone and the personal computer markets? Let's find out.
The memory market could bottom next year
The Loop Capital analyst acknowledges that the near-term weakness in the semiconductor space along with macroeconomic headwinds could weigh on the likes of Micron. That's not surprising as the company's outlook for the current quarter points toward a big drop in its top and bottom lines thanks to the oversupply in the memory industry.
The weak demand and high inventory levels led to a sharp decline in the prices of dynamic random-access memory (DRAM) and NAND flash memory chips. As a result, Micron expects its revenue to fall a whopping 45% year over year in the current quarter to $4.25 billion. Non-GAAP (adjusted) earnings for the first quarter of fiscal 2023 (started on Sept. 2) are expected at $0.04 per share, a huge decline from the prior-year period's figure of $2.16 per share.
The bad news is that the memory price decline is here to stay, at least in the short run, as demand is unlikely to pick up. Park, however, estimates that the DRAM market could bottom in the first half of fiscal 2023. He also points out that Micron's stock price could bottom a couple of quarters before that happens.
The analyst said he believes that Micron stock could start heading higher in the new year as the fundamentals of the DRAM market -- which produced 72% of the company's revenue last quarter -- start improving. Micron management also expects customers to start restocking inventories in the early part of 2023, "causing demand to rebound starting from the second quarter of calendar 2023." What's more, the company expects DRAM supply to grow at a much slower pace than the increase in demand as manufacturers reduce capital investments to keep a lid on production.
All this indicates that the memory market's demand-supply dynamics could eventually turn favorable in 2023. However, investors should note that there's still some time before that happens, and the gloomy stock market scenario on account of surging inflation and a hawkish Federal Reserve could lead to more pain for Micron investors in the near term.
What should Micron Technology investors do?
Micron stock could head lower until and unless there are concrete signs of a turnaround in the memory market. Analysts expect the company's revenue in fiscal 2023 to fall 38% over the prior year to $19 billion. Its earnings are expected to shrink to just $0.29 per share from $8.35 per share.
But from fiscal 2024 (which will begin in September 2023), a remarkable turnaround is expected at Micron.
MU EPS Estimates for Next Fiscal Year data by YCharts
Therefore, investors need to keep an eye on the developments in the memory market and start accumulating Micron stock when signs of a turnaround are visible. Additionally, the long-term prospects of the memory market and the company's aggressive investment plan over the next couple of decades suggest that this semiconductor stock is built for long-term growth.
That's why it would be a good idea for savvy investors to keep Micron Technology on their watch lists and buy it when there are visible signs of a turnaround.
