Micron Technology (NASDAQ: MU) stock fell 3.9% through 10:30 a.m. ET Monday morning after investment bank Morgan Stanley dramatically slashed its price target on the computer memory maker.
Up until today, Morgan Stanley had been saying Micron stock was worth $140 a share. Now, the banker believes Micron may be worth as little as $100.
What Morgan Stanley said about Micron
What changed? In today's note, Morgan Stanley analysts explained that their view of Micron has two main parts: high bandwidth memory chips (HBM) and everything else.
Within the HBM market for chips facilitating artificial intelligence functions, everything is still hunky dory. "HBM is expected to generate significant profits for Micron," assures Morgan Stanley, and "strong demand from AI companies ensures solid profitability" even if profit margins erode as more competitors enter the market.
On the other hand, the analyst takes "a cautious stance on the broader memory market," warning that DRAM semiconductor chips are in oversupply. And even if semiconductor stocks shift production away from DRAM to produce more HBM chips, this won't curtail ordinary DRAM production sufficiently to fix the oversupply problem there -- so profit margins will be weak everywhere but in HBM.
Is Micron stock a sell?
On top of all this, Morgan Stanley says it has "valuation concerns" about Micron stock, worrying the shares are too expensive. It's not easy to tell if the analyst is right about this, however.
Although expected to end this year with a profit, Micron is currently unprofitable -- and burning cash -- which makes it hard to hang an accurate valuation on the stock. What I can say is that if analysts are right about Micron being profitable in 2024, but earning a profit of only $0.71 per share, well, that's not a lot of profit to justify an $87-plus price tag on Micron stock. Micron's valuation does look better based on consensus forecasts for 2025 profit -- $8.38 per share, yielding a forward P/E ratio of 10.5.
But if you buy the stock based on that forecast, you'd better hope Morgan Stanley is wrong about Micron.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
