Is Micron Stock a Compelling Investment for 2024?

Micron Stock

As the curtain rises on the artificial intelligence (AI) era, the semiconductor industry experienced a stellar performance in 2023. Micron Technology (NASDAQ:MU), a prominent player in this space, witnessed a remarkable surge in its stock, climbing 72% year-to-date (YTD), outpacing the Nasdaq Composite’s 45% gain. Let’s delve into the reasons why Micron could be an attractive investment as we approach 2024.

Micron’s Upward Trajectory

Micron’s robust performance in the first quarter of fiscal 2024 signals a robust financial rebound. Bolstered by improved pricing, total revenue for the quarter ending Nov. 30 recorded a 16% year-over-year increase, reaching $4.73 billion, surpassing consensus estimates by $94.7 million. The sequential increase was even more impressive at 18%. Notably, the Compute and Networking Business Unit experienced a substantial 45% sequential revenue growth, attributed to the rising demand for data center and client AI-related shipments.

While the Mobile Business Unit saw a 7% sequential revenue growth due to a resurgence in the smartphone market, the Embedded Business Unit witnessed a 21% growth on a sequential basis. However, the Storage Business Unit faced a 12% decline from the previous quarter.

During the earnings call, Micron’s CEO, Sanjay Mehrotra, emphasized the pivotal role of memory in GPU-enabled AI servers, foreseeing a surge in demand driven by early AI solution deployments.

Investing in Innovation

Micron’s commitment to substantial research and development (R&D) investments has yielded groundbreaking technologies, enabling higher capacities, faster speeds, and energy-efficient memory solutions. With expenditures of $845 million in R&D during the first quarter alone, Micron continues to push the boundaries of semiconductor design.

DRAM revenue, contributing 73% to total revenue, saw a significant 24% sequential increase, while NAND’s revenue grew by 2% from the prior quarter. Micron’s innovative HBM3E product has garnered positive feedback, and the company plans to escalate production in the first half of 2024, aiming to generate substantial revenue in fiscal 2024.

Micron concluded the quarter with a strong balance sheet, boasting $9.8 billion in cash and investments and a stable low debt-to-equity ratio of 0.31.

Promising Outlook

Management anticipates improved business fundamentals for the rest of fiscal 2024, projecting a “record industry total addressable market (TAM) in calendar 2025.” The collaboration with Nvidia’s Grace Hopper GH200 and H200 platforms is nearing completion, potentially serving as a significant revenue growth driver.

Micron predicts DRAM bit demand to grow at a compounded annual growth rate (CAGR) in the mid-teens, while NAND bit demand is expected to grow at a CAGR in the low-20s percentage range over the next few years. Analysts foresee a 48% revenue increase to $22.9 billion for the full fiscal year 2024 and a continued surge of 38% year-over-year to $31.7 billion in fiscal year 2025.

Wall Street’s Take on Micron Stock

Post-Q1 results, Evercore ISI analyst C.J. Muse raised the target price for Micron stock to $100, with a “strong-buy” rating. Wells Fargo analyst Aaron Rakers echoed this sentiment, reiterating a “buy” rating and a $95 price target. The analyst community is bullish on Micron’s future, with 20 out of 26 analysts rating it as a “strong buy.”

With the company poised for substantial growth, Micron stock is considered a compelling investment by analysts. While the mean target price is $93.70, the high target price of $140 implies a noteworthy 61.9% upside in the next 12 months.

The Final Verdict

As AI becomes a transformative force in the semiconductor industry, Micron’s management envisions the company at the initial stages of a hyper-growth cycle driven by generative AI. With the company’s strides in innovation and promising product lineup, Micron appears to be a strategic choice for investors seeking long-term potential in the evolving AI landscape.

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