Chip stocks were among the many tech players which suffered a major sell-off this week as investors rotated back to companies seen best positioned to benefit from the Trump tax plan. To rub salt on the wound, analysts at Morgan Stanley downgraded shares of chipmakers Western Digital Corp. (WDC), Samsung Electronics and Taiwan Semiconductor (TSM) on a peak in NAND flash chip pricing. While Morgan Stanley urged investors not to worry about Micron Technology Inc. (MU), instead lifting their price target on strength in the DRAM business, one team of analysts on the Street expects 2018 to be a bumpy ride. (See also: Micron to Become Net Cash Positive by 2018: UBS.)

One of this week’s biggest losers, Boise, Idaho-based NAND and DRAM memory chip leader Micron, has seen its shares crash more than 13% since Wednesday. Reflecting on the dip in major chip players, Credit Suisse suggests that compared to last year, 2017’s decline may not be so short-lived.

Credit Suisse’s John Pitzer and team noted in a research note Thursday that compared this year’s memory stock sell-off to last year’s three-day dip, which also occurred during the firm’s technology investment conference where several chipmakers were giving presentations.

Then and Now

The analysts noted two major distinctions between this year and 2016: “(1) In 2016 the industry had clear cyclical tailwinds as y/y growth had just turned positive in C3Q16 after 4 quarters of negative growth versus today when y/y growth peaked in C2Q17 and will likely continue to decelerate until C4Q18—albeit not turn negative, and (2) there are growing concerns that better availability of iPhone X has occurred sooner than expected.”

Pitzer wrote that while “we remain structural bulls on the sector, we believe some volatility is likely and justified in the near-term i.e. last year’s loss was rightfully erased in 4 days, this year’s might take more time.”  

The analyst’s advice is to buy “defensive names” including Micron as well as Analog Devices (ADI), Texas Instruments (TXN) and Microchip Technology (MCHP). (See also: Micron Soars to 16-Year High on Samsung News.)

 

 

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