(Bloomberg) -- Semiconductor companies could see an improvement in inventory levels faster than previously anticipated, according to Goldman Sachs, which upgraded a number of companies “on early signs of memory stabilization.”
Micron Technology Inc. was lifted to buy from neutral, as were Lam Research Corp. and Applied Materials Inc., the latter of which was added to Goldman’s Conviction List. KLA Corp. was upgraded to neutral from sell.
“We are now more positive on global memory stocks as we believe that the excess inventory memory companies are carrying will be depleted faster than our previous expectations,” wrote analyst Mark Delaney, who pointed to a June outage at Toshiba Memory Corp. that had reduced production. This power failure was also seen as providing support to pricing and inventory levels at Western Digital Corp.
While Goldman had previously expected supply and demand for NAND memory chips to improve in 2020, “our most recent industry discussions suggest that NAND pricing could start to improve from low levels” in the third quarter of 2019. According to data compiled by Bloomberg, Micron derived more than 25% of its 2018 revenue from trade NAND chips.
Micron “is the best stock to express our view” on improving memory trends, the firm wrote, raising its price target to $56 from $40. Shares gained 3.6% to trade at their highest level since September. The stock is up more than 40% from a low in late June, and is poised for its fourth straight positive session.
Applied Materials gained 3.8%, while KLA rose 1.3%. Lam jumped 3.2% and was on track for its ninth positive session of the past 10 trading days.
“While visibility is limited in the near term and, we see downside to 2H19/2020 Street estimates, we believe disciplined supply-side actions from the memory manufacturers” will support both improvements in supply and demand, as well as higher levels of Wafer Fab Equipment spending in 2020, Goldman wrote.
The firm also lifted its price target on Western Digital to $54 from $46, but kept its neutral rating, citing “better valuation support for Micron,” as well as a recently rally in Western’s stock, which Goldman wrote had priced in improving fundamentals.
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