Goldman Sachs Upgrades Semis, Is 'More Positive' On Memory Stocks

The semiconductor stock group got a boost Monday when Goldman Sachs updated its coverage on some popular names.

The Analysts

Goldman analyst Mark Delaney upgraded Micron Technology, Inc. MU from Neutral to Buy and raised his price target from $40 to $56. Delaney reiterated his Neutral rating for Western Digital Corp WDC but raised his price target from $46 to $54.

Goldman analyst Toshiya Hari upgraded Applied Materials, Inc. AMAT and Lam Research Corporation LRCX from Neutral to buy and raised his price targets from $48 and $197 to $56 and $231, respectively. Hari also upgraded KLA Corp KLAC from Sell to Neutral and raised his price target from $104 to $130.

The Thesis

Delaney said Micron will be a big winner from a positive shift in the memory market.

“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, primarily in NAND flash as a result of the Toshiba Memory Corporation (TMC) fab outage that has disrupted a mid single digit percent of annual industry production (and to a lesser extent incremental capex/utilization cuts),” Delaney wrote in the note.

Delaney said industry insiders suggest NAND pricing could start to improve in the third quarter.

Hari said the semiconductor capital equipment group will also benefit from the same tailwinds and chose Applied Materials as his top stock pick. Hari is now calling for wafer fab equipment (WFEC) spending to increase by 7% in 2020, up from his previous forecast of flat growth.

“We expect AMAT to benefit from the improved outlook given its leading WFE share position (18.5%) and exposure to memory (~40% of CY18 revenue) as well as the company’s increased willingness to deploy capital,” Hari wrote.

Price Action

Here’s a look at how the stocks mentioned were trading on Monday morning:

• KLA was up 1.9%.
• Lam Research was up 3.5%.
• Applied Materials was up 4.3%.
• Western Digital was up 3.6%.
• Micron was up 2.4%.

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