Shares of Micron Technology(NASDAQ: MU) popped on Monday morning, jumping by as much as 5%. As of 11:36 a.m. ET, the rally had faded somewhat, though the stock was still up 1.2%.
The catalyst that sent the memory and storage chipmaker higher was a vote of confidence from a Wall Street analyst.
Increasing prospects
KeyBanc analyst John Vinh maintained his overweight (buy) rating on the stock while increasing his price target to $150 from its previous level of $135. That suggests potential upside of roughly 21% compared to Friday's closing price, on top of the stock's 115% gains over the past year.
After a quarterly supply chain review, the analyst came away more bullish on Micron's prospects. Users report that Micron's recently released HBM3E (High Bandwidth Memory 3E) chip offers "meaningfully superior" thermal and power performance vs. the competition. Vinh believes this puts Micron in the "pole position" and on track to exceed $1 billion in HBM revenue in calendar 2024.
Secular tailwinds
The analyst is likely on to something. Late last year, Nvidia announced it had selected Micron's HBM3E to be integrated into its Tensor Core GPUs, providing "advanced memory to handle massive amounts of data for generative AI and high-performance computing (HPC) workloads," according to the company. Micron notes that these memory chips are already sold out for calendar 2024, with much of its 2025 supply already spoken for.
The positive impact of AI is beginning to have a dramatic effect on Micron's results. For its fiscal 2024 second quarter (which ended Feb. 29), the company generated revenue of $5.82 billion, up 58% year over year and 23% sequentially. That's just the tip of the iceberg: In its fiscal Q3, Micron is guiding for revenue to surge 76% year over year to $6.6 billion.
The recent jump in its share price has driven Micron's valuation higher, yet the stock is still trading for roughly 4 times next year's expected sales. While that's a slight premium compared to the S&P 500's forward sales multiple of 3, robust demand for AI will likely continue driving demand for Micron's memory and storage solutions.
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Danny Vena has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
