Shares of Micron Technology (MU 2.92%), a leader in memory and storage for PCs and servers, are up 74% over the last 12 months, but one analyst sees more upside in the near term.
Stifel analyst Brian Chin recently upgraded the stock to a buy rating and also raised the price target to $120, representing 21% upside over the current share price of $99.
Why Wall Street is bullish on Micron's prospects
As data centers make necessary component upgrades to support artificial intelligence (AI) requirements, it increases the need for high-bandwidth memory, and this is reflected in Micron's latest financial results.
In the November-ending quarter (Micron's fiscal first quarter of 2024), revenue grew 17% over the previous quarter, and management expects improving results to continue for the rest of the year.
MU Revenue (Quarterly) data by YCharts
Is the stock a buy?
Micron's business tends to go through cyclical swings due to the fluctuating selling prices of memory and storage chips. It's a competitive market, so the demand and supply environment of these products is a key factor that determines Micron's ability to generate profitable growth.
The industry has recently made significant reductions to supply that is allowing Micron to report growing revenue. Moreover, management expects margins to improve throughout fiscal 2024. Meanwhile, the stock trades at an inexpensive forward price-to-earnings ratio of 6.7. However, it's worth noting that Micron generally trades at a low valuation due to the cyclical nature of its business.
Overall, the growing demand for AI is starting to fuel Micron's revenue growth, and this could continue for at least a few years. Investors should expect the growth in data center spending to spill over to Micron's memory business and create a catalyst for more new highs through 2025.
