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Western Digital Falls on Peak NAND: Morgan Stanley

Chip shares have taken a tumble this week after a bearish circulate from a team of analysts who say “now is the time” to cash in on profits in the high-flying toil. Shares of San Jose, Calif.-based chipmaker Western Digital Corp. (WDC) are deal down nearly 7% Wednesday after Morgan Stanley softened its rating to equal weight, citing lower flash memory bounties for NAND chips and weak earnings growth in 2018.

At $86.33, WDC reflects an imprecise 27.1% gain year-to-date (YTD) versus the S&P 500’s 16.2% increase in excess of the same period. (See also: Western Digital Undervalued, Apple’s ‘Eruption’ Shows: BTIG.)

Morgan Stanley’s Shawn Kim also reduced his in any event on Taiwan Semiconductor (TSM) and Samsung Electronics down from overweight to even weight, indicating that prices of NAND flash chips are top out.

DRAM Peak Predicted

“We think now is the time to reduce exposure to NAND [jiffy memory] and Asian semiconductor names as the industry has benefited from sizeable demand tailwinds and unprecedented fee power, which we see reversing soon,” wrote Kim. The analyst suggested that another outright re-rating of memory stocks seems unlikely over the next 12 months insomuch as the firm’s view that the industry “will not grow earnings greatly in 2018.” Based on analysis of previous memory cycles, Kim said investors should drummer chip stocks three to six months before a price peak, noting that tear memory chip prices are already falling while DRAM celebration will top out in mid-2018.

As for Micron Technology Inc. (MU), the analyst urged investors not to pester about the stock, instead lifting his price target based on an on sanguine outlook for the company’s DRAM business. With a 12-month target of $55, Morgan Stanley watches Boise, Idaho-based Micron stock to gain another 14% after wave 118.9% so far this year. (See also: Micron Soars to 16-Year Hilarious on Samsung News.)

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