November 2020 saw the arrival of the heavily anticipated new generation of high-performance video games consoles from the two biggest names in the industry; Sony and Microsoft. However, at launch, it was apparent that demand far outstripped supply with shortages at almost all major retailers globally, and some reports claiming they could last until the end of the year. These shortages are partly due to the current scarcity of computer chips well reported in major publications. 

Much of the coverage on the chip shortage has referred to its effect on the automotive industry with chipmakers shifting resources away from other areas to focus on automobile shortages. This reallocation of resources puts a strain on the supply of the specialised GDDR6 DRAM (high-performance computer components) essential to both Sony’s PS5 and Microsoft’s Xbox Series X and S high-resolution graphical performance.

Globally there are only three manufacturers of GDDR6 DRAM, each of who are likely to benefit from the sustained high demand for new consoles: Samsung (SMSN.L), Micron (MU.OQ) & SK Hynix (000660.SK). Of these companies, Micron stock price is likely to benefit the most. This is because Samsung, being a massive global company with a diverse range of products, will have a great deal more factors affecting its stock price. Also, Hynix was late to the party at starting GDDR6 production so their manufacturing facilities for the components are less well developed. Micron hits the sweet spot, being small enough for the jump in GDDR6 price to have a significant effect on them and large enough to be able to provide a good supply. In addition to this Micron have a close relationship with, providing GDDR6 memory for, NVIDIA, one of the two major GPU (graphical processing unit) manufacturers in the world.

Broker Consensus on MU.OQ (12/02/21)

Analysts who cover this security

BofA Global Research – Simon Woo
Deutsche Bank – Sidney Ho
Wedbush Securities Inc. – Matthew Bryson
Cowen and Company – Karl Ackerman, CFA
Stifel Nicolaus and Company, Incorporated – Stifel UK Equity Research Department
Needham & Company Inc. – Rajvindra Gill
Credit Suisse North America – John Pitzer
RBC Capital Markets – Mitch Steves
Raymond James – Chris Caso
Piper Sandler Companies – Harsh Kumar
Morgan Stanley – Joseph Moore
BMO Capital Markets – Ambrish Srivastava
BERNSTEIN – Mark Newman
Wells Fargo Securities, LLC – Aaron Rakers
Goldman Sachs Research – Toshiya Hari
Argus Research Corporation – Jim Kelleher
Robert W. Baird & Co. – Tristan Gerra
KeyBanc Capital Markets Inc. – Weston Twigg
ThinkEquity – Ashok Kumar
Longbow Research – Nikolay Todorov
Susquehanna Financial Group LLLP – Mehdi Hosseini
Cross Research – Shannon Cross
Fubon Securities Investment Services Co., Ltd. – Richard Hsia
JPMorgan – Harlan Sur
Cleveland Research Company – Chandler Converse
Barclays – Thomas O’Malley
Arete Research – Nam Kim
Morningstar, Inc. – Abhinav Davuluri
EVERCORE ISI – C.J. Muse
Mizuho Securities USA – Vijay Rakesh
Summit Insights Group – Kinngai Chan
Rosenblatt Securities, Inc. – Hans Mosesmann
Elazar Advisors – Chaim Siegel
SMBC Nikko Securities America, Inc. – Srini Pajjuri
Cascend Securities LLC – Eric Ross