Micron Technology (NASDAQ:MU), which makes computer-memory chips, is benefiting from multiple, strong, positive catalysts. Among these drivers are the rapidly increasing demand for its products for use in artificial intelligence (AI) systems and new AI server chips that it has begun offering recently. The latter chips tend to be more profitable than its older products.
Also positively for Micron Technology stock, multiple Wall Street banks have issued very upbeat notes on the chipmaker in recent months, while the shares’ valuation remains quite low. Finally but importantly, the company reported superb quarterly results in March. Given these points, I recommend that growth investors buy the shares.
AI Proliferation Is a Positive Growth Force
The proliferation of AI was one of the factors that boosted Micron’s financial results last quarter. That’s because the high demand for AI servers enabled the company to sell more chips for those devices, CEO Sanjay Mehrotra explained on the firm’s earnings call. Moreover, the intense interest in AI servers allowed the chipmaker to meaningfully raise the prices that it charges for the chips. As a result of these trends, memory-chip prices are likely to continue to rise throughout 2024, Mehrotra explained.
In February, Micron announced that it began producing large amounts of its new high bandwidth chip, the High Bandwidth Memory 3E solution, also known as HBM3E. In a note to investors on May 6, investment bank Baird wrote that “HBM3E has the potential to generate 60%+ gross margin for Micron next year.” The company’s overall gross margin last quarter was only 18.5%.
In 2025, HBM3E ‘s sales could soar by 150%, causing it to generate 20% of the firm’s total dynamic random access memory revenue next year, according to Baird. With Micron selling much more of this high-margin chip in 2025, its overall profit margins and bottom line are likely to jump next year.
The Street is More Upbeat on MU Stock
In addition to the boost that Micron will receive from its HBM3E chip in 2025, the firm’s financial results are currently being lifted by high DRAM pricing, Baird noted. The bank raised its rating on Micron stock to “outperform” and hiked its price target on the shares to $150 from $115.
Also bullish on Micron Technology stock recently was Citi. Citing high DRAM prices and strong demand for the firm’s high-bandwidth memory, the bank on Apr. 5 predicted that Micron’s financial results would beat analysts’ average estimates going forward. In 2025, Micron’s “high-bandwidth memory-related sales” could reach $3 billion, according to the bank, which kept a $150 price target and a “buy” rating on the chipmaker.
For its part, JPMorgan noted that the company’s supply of HBM3e chips was already sold out for the remainder of this year and most of 2025. The bank increased its price target on the shares to $130 from $100 and kept an “overweight” rating on the name.
Excellent Q3 Results and a Low valuation
In Micron’s fiscal Q2 that ended in February, its revenue jumped 58% versus the same period a year earlier, while its operating cash flow more than tripled to $1.4 billion versus $343 million during Q2 of the previous year.
Micron Technology stock has soared 40% so far this year, but it nonetheless has a low forward price-earnings ratio of 16.8 times.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
