A DRAM recovery looks ‘highly unlikely’ later this year, says Morgan Stanley
The year ahead could be a difficult one for makers of DRAM, according to Morgan Stanley.
Analyst Joseph Moore took a downbeat view on the chances for a DRAM recovery in 2019 on Monday, writing in a note to clients that he views a rebound as “highly unlikely” given the potential for a continued imbalance between supply and demand. While he said that cloud spending could bounce back later this year, DRAM seems “fundamentally oversupplied,” which could pressure memory stocks further.
DRAM consumption would have to climb by 35% this year, per Moore’s calculations, in order for inventories to stop growing.
“No amount of fiscal stimulus can drive that level of demand, in our opinion, and in a reasonably slow demand year as we currently forecast, we do not expect any of the DRAM-consuming markets—PCs, smartphones, enterprise servers, or cloud—to grow DRAM anywhere close to that fast,” he wrote.
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Moore expects that companies won’t experience “margin stabilization” until inventories stop rising and won’t experience “a meaningful marginal rebound” until inventories are cleared.
Micron Technology Inc.’s MU, -0.08% management will take the stage at a Goldman Sachs technology conference on Tuesday, but Moore said it’s probably too early for the company to provide much new information about its outlook. “We wouldn’t expect an update to numbers to come this soon, but we would expect acknowledgment that the environment is very challenging,” he wrote.
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Moore rates Micron’s stock at equal weight, but he prefers shares of Intel Corp. INTC, -0.23% and Nvidia Corp. NVDA, -0.17% to DRAM-exposed names for the year ahead. He rates Intel’s and Nvidia’s stocks at equal weight as well.
Micron shares are down 1.8% in Monday morning trading. The stock has dropped 3% over the past three months, while the S&P 500 SPX, +0.17% has fallen 2.6% and the PHLX Semiconductor Index SOX, +0.12% has risen 5.9%.
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