Shares of Micron (MU) are under pressure after Morgan Stanley analyst Joseph Moore expressed caution on the entire semiconductor sector given tariff uncertainty that could present a risk for a "demand shock" and subsequent inventory unwind. Meanwhile, Bernstein sector specialist Jordan Klein told investors that the weakness in Micron's shares was expected after Meritz Securities downgraded peer Hynix to Hold, citing its prediction for a near-term DRAM downcycle.

DEMAND/SUPPLY CONCERNS: Bernstein's Klein told investors this morning that selling pressure in Micron and other memory names was expected after Meritz Securities downgraded Hynix to Hold from Buy, calling for a short-term DRAM downcycle between Q4 and Q2 2019, given worries that Samsung (SSNLF) could change its strategy to focus on market share, driving DRAM prices downward. Noting that he has not seen the report, Klein argued that it is "impossible" for Meritz Securities to know what Samsung may or may not do in 3-9 months on DRAM supply. Meanwhile, Morgan Stanley's Moore told investors in a research note of his own that his firm's quarterly survey of distributors leads him to expect "solid" second quarter results and third quarter guidance from broad-based semiconductor companies this earnings season as demand remains strong. However, tariff related uncertainty presents a risk for a "demand shock" that could lead to an inventory unwind in the semi supply chain, Moore warned investors.

The analyst believes the potential of further semi stock outperformance is limited at this stage of the cycle, while "even the slightest whiff on the demand front" could lead to a significant decline in stocks. Additionally, the analyst pointed out that 81% of survey respondents cited supply constraints and called out the product categories of memory, passives/discretes, and MCUs, which is impacting companies such as Micron, NXP Semiconductors (NXPI) and Texas Instruments (TXN).

PRICE ACTION: In morning trading, shares of Micron have dropped 3.5% to $53.12.