Micron Technology (MU 2.92%) is experiencing something that has eluded it for decades -- a sustained bull market. For most of the PC era, volatility in the memory chip market tended to wipe out the stock's gains whenever an inevitable downturn occurred. So devastating was this trend that at one point in 2016, Micron stock traded at 1994 levels.
However, the advent of artificial intelligence (AI) brought about a secular bull market in the memory chip market. Consequently, Micron is better positioned to ride out bear markets, and with that improvement, it reached a $98 billion market cap. But does that mean the stock can reach a $1 trillion market cap by 2035?
Micron's march to $1 trillion
At a $98 billion market cap, a stock has to rise by around 24% annually to reach $1 trillion by 2035. Micron stock has risen by nearly 50% over the last year, which seems promising at first glance.
Unfortunately for Micron investors, at least one bear market will likely occur during the next 11 years, so investors need to take a longer-term view of the stock.
Over the last five years, the stock has risen by around 140%. That amounts to an annual gain of just over 19%, indicating it would fail to match the needed growth rate. Additionally, the 10-year gain of about 285% would mean gains of just over 14%. While that 10-year period accounts for a time when AI was not benefiting Micron significantly, that level of increase does not bode well for reaching that goal.
The state of Micron
Despite its uncertain prospects over the next 11 years, it will likely rise. Admittedly, its chips lack some of the cachet enjoyed by a company like Nvidia.
Nonetheless, it developed a chip that supports generative AI applications. Nvidia selected Micron's high-bandwidth memory chip (called the HBM3E) to power its H200 chip for data centers. Given Nvidia's massive gains and the considerable increases in Advanced Micro Devices stock after it released its AI processor, Micron stock could experience similar gains.
Micron's financials have already shown signs of improvement. In the first quarter of fiscal 2024, ended Nov. 30, 2023, revenue of $4.7 billion increased by 16% year over year. However, for the second quarter, Micron projects revenue between $5.1 billion and $5.5 billion. That would amount to a 44% annual revenue increase at the midpoint.
Additionally, though it lost $1.2 billion in fiscal Q1, inventory write-downs of more than $1.8 billion caused this loss. That increases the likelihood that it could return to profitability soon.
Also, while the price-to-sales (P/S) ratio of 6 may look inexpensive, that sales multiple is at a multiyear high. Nonetheless, that is well below the P/S ratios of AMD and Nvidia, and with Micron firmly on the AI train, investors may become more tolerant of higher valuations.
MU PS Ratio data by YCharts
Will Micron be a $1 trillion stock in 2035?
Given current conditions, a $1 trillion market cap in the next 11 years is possible, but investors should not expect it. Micron's move into AI chips is bullish for the stock. This factor and the chip demand driven by AI make it likely the stock will outperform the S&P 500.
However, investors should assume that bear markets will negatively affect Micron more than they would with AMD and Nvidia. That factor dramatically reduces the odds of Micron reaching a $1 trillion market cap in the next 11 years.
