Micron, Nvidia weigh on chip makers, hampering tech gains

Micron Technology Inc. shares fell Thursday, leading chip-maker stocks lower after one investment bank initiated coverage on more than a dozen chip makers and rated the Boise, Idaho-based company the worst of the bunch.

Micron MU, -6.65%  shares closed down 6.7% at $49.84 after UBS initiated coverage on 14 chip makers and said Micron was one of the firm’s few sell ratings because of “cyclical memory concerns and big estimate cuts.” The only other sell rating was on Texas Instruments Inc. TXN, -1.89%  , which finished down 1.9%.

The PHLX Semiconductor Index SOX, -1.04%  finished down 1%, compared with a 0.4% gain in the S&P 500 index’s tech sector, with the broader S&P 500 SPX, +0.69%  closing up 0.7%.

Even with data-center and AI applications keeping demand for memory chips high, with some thinking the demand playbook for memory chips is being rewritten, UBS warned that it sees a “rapidly shrinking gap between inventory growth and semis revenue growth.”

Read: Micron bets that memory demand is here to stay

Micron has been a main beneficiary of that demand, with shares currently up 76% over the past 12 months, following an all-time high of $63.42 set on March 13, compared with a 31% gain in the SOX over the same period. Micron makes DRAM, or dynamic random access memory, chips, the type of memory commonly used in PCs, servers and data centers; and NAND chips, the flash memory chips that are used in USB drives and smaller devices such as digital cameras.

“Assuming normal seasonal trends, the industry will transition to a period that is much harder to see stocks working cyclically because inventory will start to grow faster than semi revenue in mid-2018,” UBS said.

Shares of Intel Corp. INTC, +0.78% , which UBS initiated with a buy rating, finished up 0.8%, reversing an earlier decline after Stifel analyst Kevin Cassidy downgraded the chip maker to a hold from a buy. Cassidy noted that shares of Intel have grown about 35% since the launch of the company’s Xeon chipsets, and that upgrade cycles may peak in the second half of 2018.

“Longer term, we have a positive view on Intel’s strategy for transitioning to a data-centric company from PC-centric, though this may take years to develop,” Cassidy said. “Further, we have been positive on Intel for its leadership in process technology. It is clear to us that this advantage has diminished.”

Advanced Micro Devices Inc. AMD, +2.56%  shares closed up 2.6% as Stifel’s Cassidy upgraded the chip maker to a buy from a hold. Over the past 12 months, AMD shares have tumbled 30%. He noted:

1) Valuation. We believe the market has oversold the AMD shares based on alternative cryptocurrency mining solutions coming to market. 2) We suggest investors own AMD shares ahead of the company’s Epyc server CPU revenue ramp in 2H18. 3) AMD now has a full lineup of PC CPUs

Nvidia Corp. NVDA, -2.15%  shares fell 2.2% to close at $221.38 after short-seller Citron Research tweeted that it expected shares to fall below $200 soon as hyperscale customers experiment with new hardware.

Shares of Nvidia are up 121% over the past 12 months, and hit an all-time high of $254.50 on March 13.