Shares of Micron Technology (MU -0.89%) rose as much as 6.8% on Wednesday in the wake of a bullish analyst report. UBS analyst Timothy Arcuri boosted his view of the memory chipmaker from neutral to buy, moving the price target from $47 to $75 per share. That's 31% above Tuesday's closing price of $57.25 per share.

Why did UBS turn bullish on Micron? Let's take a closer look at the analyst's argument.

What the analyst said

Arcuri pointed out that Micron has traded largely sideways over the last two years, delivering a 42% return versus the S&P 500's 27% gains. But the memory market finally looks healthy again, pointing to rising sales and wider profit margins for Micron in 2020 and 2021.

"We believe the time has finally come when MU can materially outperform over a sustained period of time," Arcuri said. "[Micron] is in a much stronger position in a structurally better industry on the cusp of a cyclical upswing that, for DRAM, should last deep into [calendar year] 2021."

The analyst also argued that Micron deserves a higher price-to-earnings multiple due to a stronger competitive position and impressive business performance even at the bottom of the cyclical downturn.

Based on the analyst firm's own supply-chain checks, Arcuri expects the supply-and-demand balance will tilt heavily toward undersupply in the DRAM market for the next two years while NAND flash chips should see a smaller run of chip shortages in the first half of 2020.

How good is this analyst?

Arcuri has not been shy to adjust his ratings on Micron as industry conditions change. The analyst slapped a sell tag on the stock in June 2018 because the memory market looked ripe for a "big correction" at the time. Share prices really did drop 51% lower over the next six months.

The analyst held firm at that rating for a year and a half, adjusting his price target to $47 per share in July 2019, calling 2020 "a transition year." UBS took no action last December when Micron posted mixed first-quarter results with soft second-quarter guidance. Many other analyst firms boosted their price targets since then, driving the stock 8% higher between the earnings report and Tuesday night. The S&P 500 gained a comparable 5% over the same period.

Past performance is no guarantee of future results, and that adage applies to analyst opinions as much as it does to business performance or stock returns. That being said, Arcuri seems to have a pretty good handle on what's going on in Micron's corner of the semiconductor market.

A close-up of a RAM stick in dramatic lighting.

Image source: Getty Images.

The upshot for Micron investors

The UBS analyst's report carries strong echoes of other bullish comments on the memory market. Raymond James recently argued that memory shortages will be amplified by the fact that Micron and its sector peers reduced their infrastructure investments in 2019. Morgan Stanley admits that the cyclical downturn bottomed out quicker than expected, positioning Micron for a strong rebound. Cowen sees 5G smartphones "quickly soaking up" DRAM inventories in 2020 because these flagship models are launching with much larger memory capacities than the last generation's top models.

Let's not leave Micron CEO Sanjay Mehrotra out of this Greek chorus:

"We are confident that 5G will be positive for both memory and storage content growth, as well as smartphone unit sales, and are encouraged to see the launch of affordable 5G phones with price points as low as $300 that feature a minimum of 6 gigabytes of DRAM," Mehrotra said in December's first-quarter earnings call. "The 5G phones launched to date average 8 gigabytes of DRAM and 200 gigabytes of NAND, significantly higher than the average content in smartphones today."

Even Micron's biggest bears agree that the memory market is shaping up after a couple of rough years. As a longtime Micron owner myself, it's good to see Wall Street cottoning on to the factors behind Micron's improving fundamentals, such as 5G-powered memory shortages and a payoff for the fiscal discipline that memory makers showed last year.

It looks like Micron is about to act like a growth stock again.