Why Micron Stock Could Soar 35% on AI Memory Demand

The rally in Micron (NASDAQ: MU) has just begun because the hundreds of billions worth of datacenter-related business linked to NVIDIA (NASDAQ: NVDA), Advanced Micro Devices (NASDAQ: AMD), and Oracle (NASDAQ: ORCL) has yet to be reflected in its results or guidance.

The deal between OpenAI and Advanced Micro Devices alone is enough to suggest a significant ramp for Micron, and the demand is seen throughout the AI complex.

The takeaway is that AI requires memory, specifically the HBM3E memory provided by Micron, and the demand is so great that it will be years before the market is sated and normalcy returns. In between then and now, Micron technology will experience a game-changing revenue and earnings boost that analysts are beginning to highlight. 

October Upgrades Drive Micron to New Highs

Micron stock moved up to set a fresh all-time high in late September following its fiscal Q2 release and continued moving higher in October under the influence of analysts.

MarketBeat’s data reveals 11 reports issued in the first two weeks of the month, including initiated coverage, three upgrades to Overweight/Outperform equivalents, and numerous price target increases. 

The analysts' chatter includes numerous mentions of DRAM (critical to AI, includes HBM3E) and what Citigroup analysts call “unprecedented demand”. In their view, echoed by others, the combination of demand and undersupply creates a favorable pricing environment that will lead to improved margins and earnings leverage. 

Morgan Stanley notes that, for anyone concerned with valuation, multiple quarters of sustained double-digit growth lie ahead. The stock’s valuation, which is a reasonable 12x as of late October, falls to only 10x by 2039 in this scenario and Citigroup’s peak EPS target of $26 places it close to 7.5x.

The stock price could rise by 30% or more in that time, aligning with the analysts' forecast trends. 

More than 50% of the October price targets put this market in the $245 to $250 range or higher, with the $270 target a new high for the group. It anticipates a 35% upside for this market and will likely be viewed as a low target in hindsight. 

NVIDIA and China Are Risks—but Not Roadblocks

Micron risks include NVIDIA’s decision to utilize Samsung’s HBM3E technology and its decision to exit certain China-based businesses. The Samsung news is concerning, but ultimately does not affect Micron’s outlook. NVIDIA's move doesn’t cut Micron out of the loop but merely expands NVIDIA’s supply chain in a market where demand outstrips supply by 10-to-1.

In this scenario, NVIDIA and Advanced Micro Devices will continue to use as much HBM memory as Micron can manufacture, which is expected to increase. 

Regarding the exit from China, Micron is curbing its server-oriented business. The server business tanked in 2023 when the Biden Administration cracked down on technology exports to China and never recovered. Cutting it out will allow the company to focus on its better-performing businesses, including other markets in China.

Micron will continue to serve the automobile and mobile markets, as well as the server business, with Chinese companies such as Lenovo Group (OTCMKTS: LNVGY), which have a significant presence outside of their home nation. 

Micron’s Stock Price Is in a Secular Upswing

The daily and weekly charts give cause for concern because there is a possibility the market will peak and pull back ahead of the late December earnings release. However, the monthly chart reveals that this market is amid a secular upswing, so any price pullback is a likely buying opportunity.

Signs of strength include convergent MACD and elevated trading volume, which suggest the market is moving higher, regardless of near-term price swings. Because the MU market already reached the base-case target implied by the September breakout, the bull-case target is now in play.

That is equal to the percentage increase from the bottom to the top of the trading range preceding the breakout, or about 80%, which neatly aligns with the analyst's high-end range. 

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The article "Why Micron Stock Could Soar 35% on AI Memory Demand" first appeared on MarketBeat.