Micron Technology (MU 2.92%) stock had a terrific run last year, as investors anticipate a more favorable demand environment for memory chips translating into improving financial performance. Most analysts rate the stock a buy, but analysts at Morgan Stanley -- the only firm with a sell recommendation on Micron -- don't seem to see value in the shares. The firm maintained its underweight rating but recently bumped its price target to $78, representing about 17% downside from its current price.
However, the firm acknowledged near-term upside potential, as Micron is widely expected to report improving revenue in the fiscal second-quarter update scheduled for release on Wednesday.
Why most analysts are bullish on Micron
Micron posted a slight year-over-year decline in revenue last quarter, but it's turning the corner. CEO Sanjay Mehrotra said generative AI technology is driving more demand for memory in servers, and the acceleration of AI solutions will benefit Micron's business over time.
Improved pricing for these chips in the near term should strengthen the company's profitability, where it posted a net loss of $1.2 billion in the November-ending quarter. However, the consensus estimate on Wall Street has revenue steadily improving over the next year, which is consistent with management's outlook.
MU Quarterly Revenue Estimates data by YCharts
The consensus analyst estimate projects the company's earnings per share to reach $8.34 with annual revenue of $35 billion by fiscal 2026.
Why buy Micron stock?
Morgan Stanley analysts seem to agree on the direction of Micron's business, but the stock's valuation is the main reason for the bearish call. The analysts believe there are better opportunities for investors elsewhere.
Still, Micron trades at a forward price-to-earnings ratio of just 6.8, which is low compared to its trading history. If Micron sees accelerating demand from AI servers, there could be more upside for the stock over the long term.
