Silicon Motion stock down as BofA issues a double downgrade on soft growth

Shares in Silicon Motion Technology (NASDAQ:SIMO ) slipped in premarket trading Friday after Bank of America analysts issued a double downgrade on the NAND flash controller supplier.

The company’s shares fell 2.5% in the premarket trade.

Bank of America analysts cut their SIMO rating from Buy to Underperform as they do not expect any significant growth for SIMO following the upturn in the first half of 2024.

They note that the company’s guidance for the second half already suggests minimal top-line growth compared to the second quarter of 2024. Their new analysis also indicates low growth in 2025 for sales, operating profit (OP), and earnings per share (EPS).

"A key reason is likely the low exposure to AI and enterprise SSD, areas more dominated by Samsung Electronics and SK Hynix, respectively,” analysts said in a note.

As a result, the investment bank has cut its EPS estimates for the second half of 2024 and 2025 by about 20% due to lower revenue and operating margin assumptions compared to their earlier projections.

Bank of America notes that SIMO’s revenue primarily comes from “controller IC chips” for NAND products, unlike its competitor, Phison Electronics.

Given their expectation of limited growth after the first half of 2024, analysts have lowered their price objective for SIMO to $60 from $90, implying a 6% downside risk from current levels.

More broadly, Bank of America says its review of the memory sector shows that demand for AI server chips should remain strong, however, commodity memory demand has notably weakened.

Furthermore, the industry's sequential growth in the second half of the year is likely to be lower compared to the upturn in the first half. Analysts suggest that it wouldn’t be surprising if consensus estimates are frequently revised downward in the coming months, driven by lower volume and price assumptions.

Source: Investing.com