Second Quarter Stocks to Own Alert: Micron’s Growth Potential

As for the first quarter, the first quarter has to be one of the best ever for Micron Technology, Inc. NASDAQ:MU. The semiconductor stock had already had a solid 2023, gaining nearly 70%, but from mid-February to the middle of last week it continued to gain just as much.

For a while, Micron was on its longest winning streak ever. And while you might think the stock could take a breather now, it looks like there’s still plenty of upside to discover.

Bullish analyst comments

Over the past two weeks, more than 20 analysts have provided new updates on the stock and every one of them has been positive. Just last week, the teams at Bank of America and Citigroup reiterated their buy ratings, with Bank of America giving Micron shares a new price target of $144 and Citi one of $150.

These moves have already been echoed this week, with KeyCorp and Cantor Fitzgerald both reiterating their bullish positions and raising their price targets to $150. Considering that Micron closed Tuesday’s session at $122, after briefly surpassing $130 last week, we expect at least a further 22% upside from current levels. Not bad for a stock that’s up more than 100% in the last year, right?

So, what exactly are the factors behind all this bullish price action and positions? And how should those of us on the sidelines plan to get involved?

AI’s tailwind

For starters, it’s no secret that semiconductor stocks have been at the forefront of the artificial intelligence (AI) industry explosion, as chips and semiconductors are key products needed to harness the power of AI.

And even though it’s been a year since that tailwind actually emerged, the most recent reports suggest that demand for semiconductors is only increasing as it remains above what even the most optimistic analysts expect. Part of Citi’s update last week was based on February chip sales exceeding expectations and seasonality.

It’s also been pointed out recently that Micron has benefited from a pickup in things like dynamic RAM pricing. Since high-bandwidth memory is a key component for AI products, analysts expect this to continue to serve as a key driver of Micron’s revenue. As an example, Micron is expected to generate around $700 million from this business line in 2024, but this figure could easily reach $3 billion by the end of 2025.

Smoking the competition

There’s also the fact that Micron has managed to avoid falling out with China. Competitors Advanced Micro Devices and Intel have struggled to get the green light to sell into that market, which has spooked investors and started to become a serious handbrake on any stock price momentum. Case in point: Consider the 50% that Micron has gained since mid-February, versus AMD’s -4% decline and Intel’s -13% decline.

Even against much larger competitor NVIDIA Corp., Micron is overwhelming. NVIDIA, long considered one of the best semiconductors and the one with the most potential, has only tacked 18% since mid-February.

While it’s true that NVIDIA easily outperforms Micron when the timeline is pushed back to include 2023 and earlier, this recent underperformance versus a key peer suggests to NVIDIA investors that the company has seen sufficient earnings for the time being. At the same time, it appears that Micron investors are in recovery mode, meaning that Micron will likely continue to be called a stock to own for the foreseeable future.

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