Investor enthusiasm remains strong for artificial intelligence (AI)-related stocks, with Microsoft (NASDAQ:MSFT) experiencing a boost today following robust AI-driven earnings, and industry leader Nvidia (NASDAQ:NVDA) flaunting an impressive year-to-date gain of nearly 185%. While Nvidia, renowned for its advanced computing platform and graphics processing units (GPUs), continues to be a dominant force in constructing AI systems, there are enticing alternatives for those seeking opportunities in this space. One such compelling AI stock is Micron (NASDAQ:MU), well-positioned to harness the increasing adoption and deployment of AI solutions.
Despite grappling with significant inventory and pricing challenges, Micron stock has rallied over 34% year-to-date. Looking forward, at least one Wall Street analyst foresees the semiconductor stock reaching $100, the highest price target on the Street, within the next 12 months. Let’s delve into the reasons behind this bullish outlook.
Room for Reacceleration in 2024
Micron primarily serves the semiconductor memory and storage markets, catering to various industries, including industrial, automotive, and consumer markets (e.g., smartphones and PCs). Furthermore, storage and memory solutions are vital components driving transformative technologies like AI and 5G applications.
The fiscal year 2023 presented formidable challenges for Micron, marked by an excess of memory and storage inventory in the possession of distribution partners, declining selling prices, and lackluster demand in the end market. Nonetheless, during the Q4 conference call, the company highlighted a positive shift in the landscape. Micron emphasized that customer inventories for memory and storage in the PC and smartphone sectors have returned to normal levels, with similar trends evident across customers in the automotive market. These developments are expected to fuel a recovery in volume for Micron in fiscal year 2024. Additionally, the company has conveyed its optimism that pricing has reached its lowest point. With the resurgence of demand, Micron is poised to capitalize on an enhanced pricing environment.
The company’s CEO, Sanjay Mehrotra, anticipates growth reaccelerating in 2024, despite macroeconomic challenges. Mehrotra expressed that despite lingering macroeconomic concerns, we anticipate strong year-over-year increases in bit demand throughout 2024 for both DRAM and NAND. This surge will be fueled by the upswing in end-market demand, the stabilization of customer inventory levels, content expansion across product lines, and the sustained growth in AI. He went on to emphasize that the supply is poised to trail behind the industry’s demand growth in the calendar year 2024, providing additional impetus to the momentum.
AI Presents Promising Growth Opportunities
Micron noted that data center customer inventory is also improving and is likely to normalize in early calendar year 2024. Consequently, the company expects demand to continue strengthening, which will positively impact pricing. Additionally, Micron’s management observed robust demand for AI servers as customers shifted their budgets from conventional servers to the higher-priced AI server segment. Given the surging demand, Micron foresees an acceleration in total server unit growth for the calendar year 2024.
The company has also indicated that data center revenue has hit its lowest point and anticipates growth resuming in the first quarter of fiscal 2024. Moreover, Micron holds a positive outlook regarding the continuation of its strong performance in data center revenue, expecting this momentum to persist throughout both 2024 and 2025. Micron is also enhancing its portfolio of solutions to capitalize on AI-driven opportunities, with the HBM3E product offering set to commence production ramp-up in early 2024. Moreover, the company envisions significant revenue generation from HBM3E in fiscal year 2024.
In addition to the data center, Micron foresees a mid-single-digit percentage increase in PC volume for the calendar year 2024. The company believes that AI-enabled PCs will stimulate content growth and enhance the refresh cycle in the coming two years. Similar to PCs, Micron expects AI to drive a more robust upgrade cycle for mobile phones and increase demand for its products.
Overall, the company envisions accelerating AI-driven opportunities for memory and storage across multiple market segments. Furthermore, the improving industry demand and supply fundamentals bode well for long-term growth.
Bottom Line
Micron stands to benefit from reaccelerated volumes and improved pricing. Additionally, AI-driven opportunities in the data center, PC, smartphones, and industrial segments position the company for future growth. Demand from the automotive and industrial end markets is also expected to provide stable revenue and profitability for Micron.
While the majority of Wall Street analysts hold a bullish view on MU, a few remain cautious. Out of the 26 analysts covering Micron, 18 recommend a “Strong Buy,” two recommend a “Moderate Buy,” five suggest a “Hold,” and one maintains a “Strong Sell” recommendation.
With the Street’s highest price target for Micron stock at $100, indicating a 50% potential upside for the shares, the average price target stands at $79.94, implying a 20% growth potential from current levels.
Featured Image: Megapixl
Author Faith Yakubu 
