Micron stock is trading at a reasonable valuation based on fiscal 2026 earnings estimates.
Micron Technology (MU 4.73%) shares have nearly doubled over the last 12 months following a sharp turnaround for this top memory chip supplier. The stock currently trades near $120 after hitting a 52-week high of $130 earlier this year, but the demand for high-bandwidth memory in artificial intelligence (AI) servers could be a catalyst for further gains.
Baird believes there is “meaningful upside” for Micron. Analyst Tristan Gerra upgraded the stock from neutral to outperform with a price target of $150, implying 25% upside from the current share price.
AI is a growth catalyst for Micron
To prepare for the future of AI, data centers are in the process of making significant investments to increase data capacity, network speed, and processing horsepower. Micron is getting caught up in the AI arms race with revenue jumping 57% year over year in its fiscal 2024 second quarter (ended Feb. 29).
A key part of Micron’s growth is an increase in higher selling prices caused by the limited availability of memory chips. Baird’s internal research has found that pricing trends for dynamic random access memory (DRAM), which makes up almost three-quarters of Micron’s revenue, is trending stronger than previously expected.
Management is guiding for revenue to reach approximately $6.6 billion in the current quarter, up from $3.8 billion in the year-ago period. The company also expects profitability to improve substantially.
Is the stock heading to $150?
Analysts expect earnings to reach $10.05 per share by fiscal 2026. If the stock hits the $150 price target, it would be trading at a forward price-to-earnings (P/E) ratio of 15 based on that estimate, on par with Micron’s historical average, so Baird is making a reasonable projection of where the stock could trade in the next 12 to 18 months.
John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
