Investors’ enthusiasm remains high for artificial intelligence (AI) related stocks, with Microsoft (MSFT) moving higher today after strong AI-driven earnings, and industry leader Nvidia (NVDA) boasting a remarkable year-to-date gain of approximately 185%. While Nvidia, thanks to its advanced computing platform and graphics processing units (GPUs), remains a dominant force in building AI systems, there are other attractive options for investors seeking opportunities in the space. One compelling AI stock is Micron (MU), which is well-positioned to capitalize on the growing adoption and deployment of AI solutions.
Micron stock has gained over 34% year-to-date, despite significant challenges related to inventory and pricing. And looking ahead, at least one Wall Street analyst expects the semiconductor stock to reach $100 - the Street-high price target - in the next 12 months. Let’s see why.
Room to Reaccelerate in 2024
Micron serves the semiconductor memory and storage markets. Its products are used in various industries, including the industrial, automotive, and consumer markets (smartphones and PCs). Further, storage and memory solutions also power the advancement of transformative technologies, like AI and 5G applications.
Fiscal year 2023 proved to be a challenging period for Micron, as it grappled with an excess of memory and storage inventory held by distribution partners, softer selling prices, and sluggish demand in the end market. Nevertheless, during the Q4 conference call, the company emphasized a positive shift in the landscape. Micron pointed out that customer inventories for memory and storage in the PC and smartphone sectors have returned to normal levels, with similar trends evident across customers in the automotive market. These developments are anticipated to fuel a recovery in volume for Micron in fiscal year 2024.
Furthermore, the company expressed optimism that pricing has bottomed out. As demand starts to pick up, Micron stands to benefit from an improved pricing environment.
The company’s CEO, Sanjay Mehrotra, expects growth to reaccelerate in 2024, despite macro headwinds posing a challenge. Mehrotra said, “While macroeconomic factors remain a risk, we expect robust year-over-year bit demand growth in calendar 2024 for both DRAM and NAND, driven by improving end-market demand, normalized customer inventory levels, content growth across products, and ongoing growth in AI.”
He added that supply will fall behind industry demand growth in calendar year 2024, which will further strengthen the pace of recovery.
AI Provides Solid Opportunities for Growth
Micron stated that the data center customer inventory is also improving, and will likely normalize in early calendar year 2024. Consequently, the company expects demand to continue to strengthen, which will drive pricing.
Additionally, Micron's management has noted robust demand for AI servers, as customers redirect their budgets from conventional servers to the higher-priced AI server segment. In light of the surging demand, Micron is projecting an acceleration in total server unit growth for the calendar year 2024.
The company has also indicated that data center revenue has reached its low point, and it anticipates growth to resume in the first quarter of fiscal 2024. Furthermore, Micron is optimistic about sustaining its momentum in data center revenue throughout 2024 and 2025.
Micron is also strengthening its portfolio of solutions to capitalize on AI-led opportunities. The company has unveiled its HBM3E product offering, and anticipates commencing the production ramp of HBM3E in early 2024. Moreover, Micron envisions significant revenue generation from HBM3E in fiscal year 2024.
In addition to the data center, Micron anticipates a mid-single-digit percentage increase in PC volume for the calendar year 2024. The company foresees that AI-enabled PCs will be instrumental in stimulating content growth and enhancing the refresh cycle in the coming two years. Similar to PCs, Micron expects that AI will propel a more robust upgrade cycle for mobile phones and fuel increased demand for its products.
Overall, the company sees accelerating AI-driven opportunities for memory and storage across multiple market segments. Further, the improving industry demand and supply fundamentals bode well for long-term growth.
Bottom Line
Micron should benefit from a reacceleration in volumes and improvement in pricing. Further, AI-led opportunities in the data center, PC, smartphones, and industrial segments position the company well for future growth. In addition, demand from the auto and industrial end markets are expected to provide stable revenue and profitability for Micron.
While the majority of Wall Street analysts are bullish about MU, a few still aren't willing to endorse the stock. Out of the 26 analysts covering Micron, 18 have a “Strong Buy” recommendation, two analysts recommend a “Moderate Buy,” five have a “Hold,” and one maintains a “Strong Sell” recommendation.
While the Street-high price target for Micron stock is $100 - indicating 50% potential upside for the shares - the average price target stands at $79.94, which implies 20% growth potential from current levels.
