Micron Technology shares turned positive Thursday afternoon after being down as much as 5.6% earlier in the session, even as rival memory makers Sandisk, SK Hynix and Western Digital declined. Deutsche Bank analyst Melissa Weathers points to Micron's new long-term supply agreements and a tight memory market as reasons behind the divergence.
Micron diverges from a falling sector
Micron shares were up fractionally in Thursday afternoon trading, clawing back from a decline of as much as 5.6% earlier in the day. The move stood apart from the rest of the memory sector, where other makers declined in the same session.
Sandisk shares were off about 5% after the company's Wednesday evening earnings report. SK Hynix's American depositary receipts were also down 5%, and Western Digital shares dropped more than 10% as investors reacted negatively to its results.
Investors balked at Sandisk's softer-than-expected guidance for the September quarter. But some Wall Street analysts said the company's focus on long-term durability through a new supply-agreement business model should support stronger earnings further down the line.
A tighter supply model backs Micron's resilience
Micron introduced a similar shift in March, when it began signing strategic customer agreements, or SCAs, designed to improve its visibility into demand and give customers assurance of supply. Deutsche Bank analyst Melissa Weathers said Micron's evolving business model is one reason it is positioned strongly in the memory market. She said supply of both NAND and DRAM remains tight, and AI demand is making the imbalance more acute than in past cycles.
In a tight supply environment, Weathers said, customers are likely to prioritize core memory capacity over storage, since storage can be added through pluggable components, giving memory systems a higher degree of inelasticity. According to Micron's management, the SCAs — expected to account for about 40% of the company's memory volume — aim to ease shortage dynamics across the industry, Weathers said.
Weathers added that Micron's broad portfolio, spanning high-bandwidth memory to storage, gives it "the luxury of growth without sacrificing profitability." She also noted that memory's share of a system's overall value has shifted from 10% to almost 50% with the advent of AI — a shift she believes investors are underappreciating.
In her view, Micron's product mix, its new customer agreements and the ongoing supply-demand imbalance are likely to send earnings estimates higher, Weathers said.
Source: MarketWatch
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