Micron Technology (MU 2.92%) stock is red hot -- more than doubling the stock price performance of the S&P 500 over the past year as investors bet that Micron's high-bandwidth memory (HBM) chips will prove essential to keeping the artificial intelligence revolution going.
One analyst who's particularly optimistic about Micron's prospects is Wolfe Research's Chris Caso. On Wednesday, Caso raised his price target on Micron to $120 a share, implying that Micron stock will gain more than 30% over the next 12 months or so.
Is Micron stock a buy?
Historically, Micron stock has traded for about 11 times its average earnings -- a conservative multiple that's appropriate for a cyclical stock that can grow quickly when the semiconductor cycle is healthy, but also loses a lot of money during downturns. Caso argues that Micron should be worth closer to 14 times its projected 2025 earnings, though, on his assumption that Micron will earn nearly $8.40 per share next year, and potentially outearn its previous record of $11.51 per share (hit in 2018) by the time this earnings cycle peaks.
Is that realistic, though?
Micron lost money last year. It's probably going to lose money this year, too. Looking down the road, most analysts see this current cycle peaking in 2026 -- with Micron still short of earning even $7 a share (much less $12!).
Caso's prediction is quite an outlier, and I'm not certain he's fully accounting for the risk that rivals with greater scale and greater market share might undercut the company on price and crimp its ability to fully take advantage of this growing market. Both South Korea's SK Hynix and Samsung are several times bigger than Micron in HBM, after all. And both of these companies expect to be profitable this year, while Micron lags behind.
Micron stock hitting $120 is certainly possible, but I wouldn't take this price target as a given. A price that's 11 times everyone else's peak earnings estimate for Micron -- $7 a share -- would be a much safer target at which to buy this stock.
