Western Digital stock pops after Morgan Stanley maintains Overweight rating
vzphotos/iStock Editorial via Getty Images
Western Digital (WDC) stock rose ~6% on Thursday after Morgan Stanley reiterated its Overweight rating on the shares with a $52 price target.
The firm noted that secular demand for NAND â a type of storage technology â remains strong, despite near term pricing pressures. In addition, the NAND business is also undervalued on a sum-of-the-parts basis.
The analysts said that, while the market remains oversupplied, they have seen instances of double-digit price increase for September delivery, first in consumer and recently in enterprise. Buyers are cynical, but are paying the higher prices. The firm still sees a positive risk reward for Western Digital from here.
The analysts have seen instances of contract prices for NAND coming up 10%-20% for September month delivery, initially for consumer, and more recently for enterprise grade NAND.
This is being steered by a coordinated effort by one supplier pitching to customers that reductions in wafer starts are tightening up the market, with others following at least directionally, the firm noted.
The analysts' discussions with buyers suggest skepticism â there is no sign that the market is approaching a state of tighter supply demand balance, and there seems to be ample availability of additional upside at the higher prices for anyone who wants it, suggesting that producers still have inventory. However, customers are taking the higher prices without any volume adjustments, at least for now, according to the analysts.
The firm noted that there are reasons to be skeptical when conditions are bottoming, however a change in pricing could lead to a change in customer inventory behavior as well.
Micron Technology (NASDAQ:MU): Morgan Stanley noted that it remains Underweight on Micron.
The analysts see the risk of a Memory inventory digestion which is longer and more severe than most expect. Inventory levels are still elevated, memory tends to be a high percentage of the bill of materials for end products, and the pricing is volatile.
The analysts noted that while DRAM (dynamic random access memory) pricing has been protected by inventory builds and consistent pricing at suppliers, they see pricing weakening in the near term. Shipment volume has been weak relative to history, and they think it has been challenging to move bits.
The analysts see demand weakening in critical memory end markets (PC, smartphone and cloud), and with the stock now in the mid to high sixties, they see the most likely outcome as modest downside from here.
Phison Electronics: The firm also highlighted Overweight rated Taiwan-based Phison. The analysts said that the chairman believes raw NAND prices are cheap enough, and that the company will buy more raw NAND in Q3'23 if the prices are still declining quarter-over-quarter.
The analysts think Phison should be able to maintain its gross margin at a high level because its inventory cost is extremely low now, and thus they were reiterating an Overweight rating.

More on Micron and Western Digital

Micron: Why Big Money Buys/Holds At ~$63?
Micron Technology: HMB3 Gen2 Is A Game Changer
Micron: Depth Of The Crisis Is Underestimated By The Market
Micron: Slower Recovery, But Nothing Far From A Buy
Micron rises, says federal funding necessary for Idaho, NY manufacturing plants
Western Digital trades lower after Q1 outlook disappoints as weak cloud demand lingers
Western Digital rises as Wedbush adds to Best Ideas List