Western Digital and Micron suffer as Mizuho downgrades them due to pricing decreases and weak data centres.

When research company Mizuho downgraded Micron Technology (NASDAQ:MU) and Western Digital (NASDAQ:WDC) on Wednesday, it cited recent checks showing "steepening pricing decreases" heading into the upcoming quarter and the first half of next year.

The ratings of Micron Technology (MU) and Western Digital (WDC) were both lowered from buy to neutral by analyst Vijay Rakesh, who also noted that the server and data centre markets are beginning to show signs of weakness, particularly "with softening demand in China/Europe and slowing CPU/GPU ramps."

Rakesh also brought up concerns about the data centre, pointing out that at Nvidia's (NVDA) analyst day, the company stated that its Hopper H100 will ramp up in a "few of months," suggesting that Western Digital (WDC) and Micron would continue to struggle (MU).

While both [Micron] and [Western Digital] have performed well with a strong and industry-leading Memory portfolio and improving 22TB [hard disc drive], Rakesh noted in a note to investors that "we view decreasing consumer/hyperscale demand and large inventory as challenges." The analyst also reduced the price forecasts for Micron (MU) and Western Digital (WDC) to $56 from $75 and $40 from $62, respectively, from earlier levels.

Rakesh stated, "The downgrade may be timing-delayed, but it is likely that a bad macro environment, together with weak consumer demand, huge inventories, and sustained supply growth, signal greater downside risk over the next 4-6 months."

In premarket trade, Micron (MU) shares dropped more than 2% to $49.63 and Western Digital (WDC) shares dropped 2% to $34.80.

Both the markets for dynamic random access memory, or DRAM, and the costs of NAND memory are experiencing price drops. Rakesh also mentioned that Yangtze Memory Technologies, a Chinese memory chip manufacturer, is "gaining share" and adding "substantial capacity," and that this could scale up into the iPhone 14 in the future.

Earlier this month, a number of Republican legislators sent a warning to Apple (AAPL) regarding the potential use of Yangtze Memory Technologies processors within the iPhone and the political repercussions should the tech giant decide to take that step.

The analyst significantly cut his estimates for both Micron (MU) and Western Digital (WDC). He now expects Micron (MU) to generate $24.5 billion in revenue and $3.59 per share in earnings for the fiscal year 2023, down from $25.2 billion and $5.05 per share. He reduced his prior forecast of $30.2 billion in sales and $8.12 per share to $29.7 billion in revenue and $5.92 in earnings per share for the company's fiscal 2024.

He has decreased his previous projections for Western Digital (WDC) from $15.4 billion and $2.36 per share to $14.9 billion and $1.56 per share for the company's fiscal 2023 results. He reduced his former projection of $17.9B in revenue and $4.87 per share to $16.6B and $2.55 per share for the fiscal year 2024.

The upcoming quarterly results are expected to be "extremely negative," according to Wells Fargo analyst Aaron Rakers, who also reduced his projections for Micron (MU) on Wednesday. He cited the persistent downturn in both the DRAM and NAND sectors as the reason.

Western Digital (WDC) was downgraded by Deutsche Bank on Tuesday, citing the company's "uncertain" route to recovery.

The majority of analysts are wary of Western Digital (WDC). The Wall Street experts rank it as a BUY, while the authors of Seeking Alpha give it a HOLD rating. WDC is rated a HOLD by Seeking Alpha's quantitative approach, which routinely outperforms the market.