Many investors have made huge profits from artificial intelligence (AI) stocks over the last 12 months. Nvidia's (NVDA 1.53%) shares have surged more than 25%. Google parent Alphabet (GOOG 1.69%) (GOOGL 1.66%) is up close to 70%. Palantir Technologies' (PLTR +1.25%) share price has more than doubled.
But those AI stocks don't hold a candle to Micron Technology (MU 3.21%). This tech stock is up more than 260% over the last 12 months. I think it could go even higher.
NASDAQ: MU
Key Data Points
Context is king
AI isn't just running in data centers. It's running on edge devices such as smartphones and smart glasses. It's running in cars and trucks. And it's becoming even more pervasive.
Micron CEO Sanjay Mehrotra stated in an interview earlier this month with CNBC's Jim Cramer, "AI-driven demand is accelerating. It is real. It is here, and we need more and more memory to address that demand."
The last part of Mehrotra's statement is critical. Developers of large language models (LLMs) are rapidly expanding the context windows (the amount of data processed at one time) for these systems. The greater the context window, the more memory is required. And not just any memory works. LLMs need high-bandwidth memory (HBM).
Mehrotra said in Micron's fiscal 2026 first-quarter earnings call in December, "Memory is now essential to AI cognitive functions, fundamentally altering its role from a system component to a strategic asset that dictates product performance from data center to the edge." If context is king for AI systems, HBM is the kingmaker.
Following the law
Micron projects that the HBM total addressable market will rapidly expand from around $35 billion last year to roughly $100 billion in 2028, with a compound annual growth rate of approximately 40%. Previously, the company didn't expect the HBM market to reach $100 billion until 2030.
However, HBM supply probably won't keep up with demand. Mehrotra told analysts in Micron's Q1 earnings call that strong demand and supply constraints will likely "persist beyond calendar 2026."
Image source: Micron Technology.
The supply demand imbalance for HBM in the AI data center market could persist for quite some time. Mehrotra said in the Q1 update, "We believe the aggregate industry supply will remain substantially short of the demand for the foreseeable future." He also pointed to robust longer-term demand trends for memory in aerospace and defense, edge networking, factory automation, humanoid robotics, and video surveillance.
Anyone familiar with the law of supply and demand knows that a tight supply and strong demand lead to higher prices. Micron stands to benefit tremendously from these market dynamics. Indeed, William Blair analyst Sebastien Naji thinks the company's earnings could nearly quadruple over the next two years.
Share prices tend to follow earnings, suggesting Micron's stock has room for significant growth. Importantly, this growth isn't already baked into the company's share price. Micron's shares trade at only 12.5 times forward earnings, with its price-to-earnings-to-growth (PEG) ratio at a low 0.7.
Curb your enthusiasm?
You might think that an AI stock that has soared and has the growth prospects that Micron has would enjoy overwhelmingly bullish support on Wall Street. Surprisingly, that isn't the case.
Sure, 37 of the 43 analysts surveyed by S&P Global (SPGI 2.16%) in January who cover Micron rated the stock as a "buy" or "strong buy." More telling, though, was that the consensus 12-month price target for Micron is 12% below the current share price.
This bearish price target could simply reflect that Micron's share price has surged so much and so quickly that analysts haven't been able to keep up with revised updates. On the other hand, it could indicate deeper concerns – perhaps that a rival such as Samsung could capture HBM market share from Micron.
Whatever the reason behind the low price target, I don't think investors should curb their enthusiasm about Micron because of Wall Street's views. The future remains bright for this high-flying stock.
