The rapid growth of this chip stock will likely be rewarded with further price increases on the market.
The stock market did not reward Micron technology (MU -2.65%) enough for the outstanding growth it has achieved in 2024, as evidenced by the 26 percent jump in the storage specialist’s shares so far this year.
It’s also worth noting that Micron stock has fallen nearly 30% since hitting a 52-week high two months ago, but that’s good news for savvy investors looking to buy a company that’s poised to capitalize on the rapidly growing adoption of artificial intelligence (AI) hardware across multiple end markets, including data centers, smartphones and personal computers (PCs).
Here’s a closer look at why buying Micron Technology seems like a no-brainer at this point.
Micron Technology could sustain its impressive growth in the long term
The memory industry, in which Micron Technology operates, has historically been cyclical, going through boom and bust cycles depending on supply and demand dynamics. When demand for memory chips increased, chipmakers like Micron typically increased their production to meet demand. However, a drop in demand meant they had more supply available, leading to a sharp drop in prices that reduced their revenues and margins.
The good news is that the memory industry’s boom and bust cycles are likely over. Grand View Research estimates that the global memory market’s annual revenue could grow from $111 billion in 2024 to $240 billion in 2030. AI will play a major role in the growth of this market, as demand for high-bandwidth memory (HBM), used in the manufacture of AI chips, is growing much faster.
More specifically, the HBM market is expected to reach nearly $86 billion in annual revenue in 2030, up from $1.8 billion last year, representing a 68% compound annual growth rate over that period. And even better, this isn’t the only market where AI will drive a big leap in memory consumption.
According to Micron, AI-enabled PCs powered by neural processing units to handle AI workloads are expected to have 40 to 80 percent more dynamic random access memory (DRAM) to enable faster computing. Similarly, Micron points out that flagship Android smartphones have 50 to 100 percent more DRAM content compared to last year’s models to support generative AI applications.
If we take a closer look at the potential growth of these three markets over the long term, it is clear that Micron is at the beginning of a major growth curve. The global data center market, for example, is expected to triple its revenue between 2024 and 2034, reaching annual revenue of $776 billion after a decade.
The market for AI-enabled smartphones, on the other hand, is expected to grow 28% annually through 2030. The global PC market is also expected to grow at a healthy annual rate of 8% through 2030, generating annual revenue of nearly $257 billion. So Micron’s business has several growth drivers that could prevent the memory industry from going bankrupt again.
For this reason, analysts expect the company to maintain its impressive growth over the next few fiscal years, after revenue is expected to rise 61% to $25 billion this year.
MU revenue estimates for the current fiscal year, data from YCharts
The valuation and the upside potential make the stock a sure-fire winner
We’ve already seen that Micron is delivering excellent revenue growth. And more importantly, this will also translate into a significant increase in earnings. The company made a loss of $4.45 per share last year, and the chart shows that it will return to profit in the current fiscal year. And more importantly, Micron’s earnings growth forecast for the next few years is also quite solid.
MU EPS estimates for the current fiscal year, data from YCharts
Given the excellent growth this semiconductor stock is likely to deliver, buying it now is a no-brainer. Micron is currently trading at just 11.7 times forward earnings, a huge discount to the Nasdaq-100 The index’s forward earnings multiple is 27 (using the index as an indicator for technology stocks).
Citigroup recently reiterated a $175 price target on Micron and reiterated its Buy rating on the stock, suggesting a 62% upside from current levels. Meanwhile, according to 41 analysts covering Micron (93% of whom rate it as a Buy), the stock has a median 12-month price target of $165. That would be a 54% upside from current levels.
Given the extremely attractive valuation and the great growth prospects, investors would do well to buy Micron Technology before the stock market recovery gains momentum.
Citigroup is an advertising partner of The Ascent, a Motley Fool company. Harsh Chauhan does not own any of the stocks mentioned. The Motley Fool does not own any of the stocks mentioned. The Motley Fool has a disclosure policy.
