Micron Technology (MU 3.21%) was in absolutely stunning form on the stock market over the past year. Shares of the memory specialist shot up by an incredible 341% over this period, propelled by enthusiasm over the company's outstanding growth in its revenue and earnings.
Analysts, however, are now suggesting that Micron stock may not deliver further upside. Its 12-month median price target of $417.50 is almost in line with its current stock price. I think Micron will prove Wall Street's estimates wrong and deliver significantly bigger gains in the coming year. Here's why.
Image source: Micron Technology.
Micron stock is cheap despite its remarkable rally
Investors who missed out on Micron's incredible run can buy in now at a really attractive valuation. Its forward earnings multiple of 12.6 is half the average forward earnings multiple of the tech-laden Nasdaq-100 index. This makes Micron a no-brainer buy, since its earnings growth is poised to significantly exceed the broader market's average earnings growth.
A potential 309% jump in Micron's earnings in the current fiscal year is well above the 14% average growth that companies in the S&P 500 are forecast to deliver. What's more, analysts expect a 31% increase in Micron's earnings in the next fiscal year as well to $44.55 per share, double the average growth of the S&P 500 companies.
However, don't be surprised to see Micron's earnings land ahead of Wall Street's ambitious expectations. After all, the memory market is set to remain supply-constrained through 2028, primarily due to artificial intelligence (AI)-fueled demand.
NASDAQ: MU
Key Data Points
AI servers are using up the supply of dynamic random-access memory (DRAM) and NAND flash chips that Micron manufactures. That's not surprising, as AI accelerators are equipped with bigger and faster DRAM chips. Also, the need to store large amounts of data for training AI models and running inference applications has boosted demand for flash storage.
Tight supply and strong demand led to a remarkable jump in memory prices, boosting the industry's revenue. Memory manufacturers point out that the shortage will last until 2027 at least. So, the trend of higher prices could continue. That's the reason why market research firm TrendForce estimates a 134% jump in the memory industry's revenue this year, followed by a 53% spike next year to almost $843 billion.
The stock is poised for massive upside
The memory market's growth potential indicates that Micron's earnings in the next fiscal year could exceed expectations. But even if its earnings hit $44.55 per share, per Wall Street's expectations, its stock price could jump to $980 (based on the S&P 500's forward earnings multiple of 22). That suggests potential gains of 137% from current levels.
However, this AI stock could clock bigger gains, as its market-beating growth is likely to be rewarded with a premium valuation. So, don't be surprised to see Micron crushing Wall Street's 12-month median price target and proving analysts wrong in the coming year.
