This Analyst Upgrades Major Semiconductor Stocks, Sees Demand Improvement In 2H

Mizuho analyst Vijay Rakesh upgraded Micron Technology, Inc MU, Western Digital Corp WDC, and Seagate Technology Holdings PLC STX to Buy from Neutral.

Rakesh raised Micron's price target from $48 to $72, Western Digital's price target from $38 to $50, and Seagate's price target from $62 to $82.

Given substantial bit supply cuts of 30% into the first half, Memory inventory could peak in the first half, the analyst noted. 

The analyst believes PC-Handset-Server revenue could bottom in the first half, positioning for better second-half Memory demand as industry inventory is normalized and new product launches and seasonal strength drive a solid second half.

A cyclical bottom is forming in Memory, with the current oversupplied conditions improving into the second half, Rakesh wrote. 

While inventory remains the most considerable overhang, 2023 bit supply and Capex for memory suppliers will likely come in at the lowest levels in 10 years, potentially setting up for a better second half and 2024E as demand improves.

The analyst believes STX (40% market share) has aggressively cut HDD production, with December quarter inventory down 25% Q/Q. It has resized its fab footprint, potentially driving a top-line and margin rebound in the second half from Enterprise demand recovering and China reopening.

The analyst saw demand improving in the second half, with PC demand benefiting from better Enterprise demand and China reopening. 

The analyst saw improving Handsets demand with the Apple Inc AAPL iPhone 15 launch, Samsung Electronics Co, Ltd SSNLF Galaxy S23 ramp, and a China handset OEM rebound. 

The analyst also cited Datacenter and Cloud spending is growing with Oracle Corp ORCL, Alphabet Inc GOOG, Amazon.Com Inc AMZN spending recovery and new product ramps (Genoa Server, Hopper AI, Sapphire Rapids).

Price Action: STX shares traded higher by 1.64% at $70.95 on the last check Friday.