A $1,000 investment made in Micron Technology (MU 2.92%) stock three years ago is worth just $1,140 right now, as shares of the memory specialist have underperformed the broader semiconductor sector by a big margin.
Micron's 14% jump during this period has been eclipsed by the impressive 58% gain clocked by the PHLX Semiconductor Sector index. That isn't surprising, given that the chipmaker has struggled on account of an oversupply in the memory market, which led to a decline in its revenue and earnings in recent years.
MU Revenue (TTM) data by YCharts
However, a closer look at Micron stock indicates that it has regained its mojo. The stock is up 65% since hitting a 52-week low in March of last year. But can Micron sustain this rally and head higher over the next three years as well? Let's find out.
Micron Technology's days of struggle are over
When Micron reported fiscal 2024 first-quarter results (for the three months ended Nov. 30, 2023) in December last year, the company reported a 16% year-over-year increase in revenue to $4.73 billion. That was a big improvement over the company's fiscal 2023 performance when its revenue fell 49% to $15.5 billion.
Micron also reported an adjusted loss of $4.45 per share in fiscal 2023 as compared to a profit of $8.35 per share in the preceding year, driven by a massive collapse in memory prices. Poor demand from the smartphone and personal computer (PC) markets led to an oversupply and sent Micron's top and bottom lines packing.
However, the company's performance in the previous quarter suggests that it is in turnaround mode. What's more, Micron's guidance for the current quarter points toward an acceleration in its growth.
The company anticipates $5.3 billion in revenue in fiscal Q2, which would translate into a solid year-over-year jump of 43%. This terrific turnaround in Micron's fortunes is being driven by the rapid adoption of artificial intelligence (AI), as this technology is positively impacting multiple markets that the chipmaker serves.
For example, Micron's Compute and Networking Business Unit, which includes sales of memory chips used in data centers and PCs, witnessed a 45% sequential increase in revenue. Management said that "AI-related shipments increased in the data center market," driven by the increasing demand for high-bandwidth memory (HBM), which is needed in AI servers to enable faster performance, reduce power consumption, and provide higher capacity.
Micron believes that the production ramp of its latest generation of HBM could help it generate "several hundred" million dollars in revenue in the current fiscal year, followed by further growth in 2025. More importantly, HBM could turn out to be a strong growth driver for Micron in the long run, as the demand for these chips is predicted to increase at an impressive annual rate of 82% through 2027, according to memory manufacturer SK Hynix.
Beyond data centers, the integration of AI-enabled features in smartphones and PCs will be another tailwind for Micron. Market research firm Counterpoint Research estimates that a total of 1 billion smartphones equipped with generative AI features could be shipped from 2024 to 2027. Considering Micron's estimate that each AI-enabled smartphone could require an additional 4GB (gigabytes) to 8GB of additional dynamic random-access memory (DRAM), the company could witness a huge jump in its addressable market because of AI adoption in this space.
Meanwhile, Micron is also predicting an identical increase of 4GB to 8GB of DRAM in each AI-enabled PC. This is likely to unlock another lucrative opportunity for Micron as a total of 170 million AI PCs are expected to be shipped in 2027, accounting for 60% of the overall market. That would be a nice jump from this year, when 19% of PCs are predicted to be AI-capable.
In all, it is evident that Micron's addressable market is set to grow over the next three years, and this could translate into solid gains for the company.
The stock seems primed for healthy gains in the next three years
Analysts are anticipating Micron's top line will increase by 46% in fiscal 2024 and 41% in fiscal 2025. Even better, Micron's loss is expected to shrink substantially this year, followed by healthy profit jumps in the fiscal years 2025 and 2026.
MU EPS Estimates for Current Fiscal Year data by YCharts
Assuming Micron does achieve $7.34 per share in earnings in fiscal 2026 and trades at 29 times forward earnings at that time, equivalent to the Nasdaq-100's forward earnings multiple (using the index as a proxy for tech stocks), the company's stock price could hit $213 in the next three years. That points toward 140% gains from current levels, indicating that this semiconductor stock may be able to sustain its recent momentum over the next three years and deliver more gains to investors.
That's why investors looking to capitalize on fast-growing trends such as AI should consider buying Micron stock before it jumps higher.
