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The semiconductor industry is buzzing with a remarkable surge in DRAM (Dynamic Random-Access Memory) product demand. The DRAM market is poised to expand at a compound annual growth rate of 22.7% by 2029, with DDR5 leading the pack, signaling bright prospects ahead.
Semiconductor giant Micron Technology, Inc. (MU) stands out with its cutting-edge technology, high-capacity DDR5 memory, and artificial intelligence (AI)-driven demand. It is now on Baird's top semiconductor stocks list alongside industry giants like Nvidia Corporation (NVDA).
Baird analyst Tristan Gerra recently upgraded MU, anticipating a new "super cycle" brewing for Micron, especially with high bandwidth memory's (HBM) promising gross margin potential. Despite MU's recent pullback, Gerra sees a robust upside for the memory chipmaker, especially with DRAM prices climbing and supply growth slowing.
Let’s take a closer look at the stock.
About Micron Technology Stock
Founded in 1978, Micron Technology, Inc. (MU) is a leading manufacturer of innovative memory and storage solutions, providing essential tech for industries like computing, networking, and mobile communications. The Boise-based company's top-notch offerings include DRAM, NAND Flash memory, solid-state drives (SSDs), and other memory and storage products. Its market cap currently stands at about $131.7 billion.
Shares of Micron have surged 94.9% over the past 52 weeks, significantly outperforming the S&P 500 Index's ($SPX) 26.3% returns and the iShares Semiconductor ETF’s (SOXX) 60% gains.
On April 16, the company paid its shareholders a quarterly dividend of $0.115 per share. MU offers an annualized dividend of $0.46 per share, resulting in a yield of 0.39%. Furthermore, Micron Technology maintains a payout ratio of 12.8%, which allows sufficient flexibility for growth initiatives and potential dividend increases in the future.
Priced at 8.47 times sales, Micron Technology trades at a discount to its peers, such as Taiwan Semiconductor (TSM) and Advanced Micro Devices (AMD).
Micron Technology’s Q2 Beats Wall Street Projections
Shares of the chipmaker rose after the company reported solid fiscal Q2 earnings results and upbeat guidance on March 20. Its total revenue rose 57.7% annually to $5.8 billion, beating Wall Street's estimates by 8.9%. Its adjusted EPS rose to $0.42 from a loss of $1.91 per diluted share, also topping analysts' estimates.
Micron's President and CEO, Sanjay Mehrotra, noted, “Our preeminent product portfolio positions us well to deliver a strong fiscal second half of 2024. We believe Micron is one of the biggest beneficiaries in the semiconductor industry of the multi-year opportunity enabled by AI.”
Micron is making waves in the tech world by shipping its cutting-edge 128GB DDR5 RDIMM memory, tailored for AI data centers. With improved density, energy efficiency, and lower latency, it is set to revolutionize performance. This move could position Micron as a leader in powering next-gen AI, machine learning (ML) applications, and other critical data center functions.
The company is also set to receive $6.1 billion in CHIPS Act grants from the Commerce Department to establish factories in New York to revive U.S. semiconductor manufacturing. Senate Majority Leader Chuck Schumer (D-NY) stated that Micron intends to build numerous complex chip plants over the next two decades.
Looking ahead, the memory chip maker projects current-quarter midpoint adjusted earnings of $0.45 per share (plus or minus $0.07) on revenue of $6.6 billion (plus or minus $200 million).
The company did not provide any guidance for the full year. However, analysts tracking Micron Technology predict EPS of $0.24 in fiscal 2024, with the bottom line projected to surge to $6.39 in fiscal 2025.
What Do Analysts Expect for Micron Technology Stock?
On May 6, Baird upgraded Micron Technology to “Outperform” from “Neutral,” raising the price target to $150 from $115. This indicates that the stock could rally as much as 26.6% from its current price level.
Baird's upbeat outlook stems from a promising future for the memory sector. Stronger-than-expected DRAM pricing is a key driver, along with a shift to premium DDR5 memory, which is anticipated to continue commanding a price premium in the market.
In particular, analyst Tristan Gerra foresees Micron's HBM3E memory fetching over 60% gross margin, which is expected to increase with 8H to 12H migration. Plus, a "super cycle" in HBM could contribute 20% of Micron's total DRAM revenue by 2025, with a whopping 150% growth next year.
Overall, analysts have deemed MU stock a “Strong Buy.” Out of 28 analysts covering the stock, 25 advise a “Strong Buy,” two suggest a “Moderate Buy” rating, and the remaining one gives a “Moderate Sell.”
The average analyst price target for Micron Technology is $127.07, indicating a potential upside of 7.3%. The Street-high target price of $225, raised by Rosenblatt in March after earnings, suggests that the stock could rally as much as 90.1%.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
