The artificial intelligence (AI) frenzy has slowed down a bit in 2024. However, AI's impact on all industries is still in full force. The semiconductor industry, in particular, is benefiting the most, and could continue to do so. The market is estimated to grow at a compound annual growth rate of 12.2% to be worth $1.38 trillion by 2029. 

Among the key players in this sector, Micron Technology (MU) holds a significant position, driving advances in memory and storage solutions that power the digital age. Founded in 1978, Micron is a leading manufacturer of memory chips that are used in a wide range of electronic devices, including smartphones, computers, data centers, and automotive systems.

Valued at $118.2 billion, Micron’s stock is up 27.8% year-to-date, outpacing the tech-heavy Nasdaq Composite’s ($NASX)gain of 2.9%.

Micron’s Strengthening Fundamentals

Micron’s products are integral components in devices across industries, driving demand and revenue growth. Its product portfolio includes DRAM, CXL memory, NAND flash, NOR flash memory, auto/industrial SSDs, and more.

In the second quarter of fiscal 2024, total revenue increased by 58% year on year to $5.82 billion. Adjusted diluted earnings per share (EPS) were $0.42, up from a loss of $1.91 per diluted share in the year-ago quarter.

Talking about the results, Sanjay Mehrotra, President and CEO, 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.”

Furthermore, management highlighted that an increase in capital expenditure to $1.25 billion in the quarter resulted in a negative free cash flow of $29 million. Micron's balance sheet showed cash, marketable investments, and restricted cash totaling $9.72 billion at the end of the quarter.

According to reports, Micron is set to receive $6.1 billion in CHIPS Act grants from the Commerce Department to establish factories in New York as part of an initiative to bring semiconductor manufacturing back to the U.S. Senate Majority Leader Chuck Schumer (D-NY) stated that the company intends to build numerous complex chip plants over the next 20 years.

Micron also pays dividends. Its dividend yield of 0.43% is lower than the technology sector's average yield of 1.37%, though its forward payout ratio of 6.01% indicates that there is significant room for dividend growth.

The company anticipates 76% revenue growth to $6.6 billion (plus or minus $200 million) in the third quarter. Furthermore, adjusted EPS could be $0.45 (plus or minus $0.07), compared to a loss of $1.43 per diluted share in the prior year quarter. 

The company didn’t provide any guidance for the full year. However, analysts predict revenue growth of 57.9% to $24.5 billion in fiscal 2024, with revenue rising further by 40.5% in fiscal 2025. 

Compared to a loss of $4.45 in fiscal 2023, Micron is estimated to swing to a profit of $0.70 in fiscal 2024, increasing dramatically to a profit of $7.65 per share in fiscal 2025. Micron's stock trades at 4 times forward sales estimates for 2024, while peer Nvidia (NVDA) trades at 16 times forward sales.

Is Micron a Buy, According to Analysts?

Recently, Citi analyst Christopher Danely maintained his “buy” rating for the stock, with a $150 price target. The analyst said, "We believe Micron is trading down today on TSMC negative comments on traditional servers and handsets combined with CHIPS act grants resulting in higher capex. We would buy the stock on any weakness as the DRAM recovery is supply, not demand driven and even if Micron raises capex 20%, it is still 20% below the previous peak.”

Furthermore, Bank of America Securities analyst Vivek Arya also reiterated a “buy” rating on MU stock. Similarly, Wells Fargo maintained the same stance, setting a price target of $135.

Overall, Wall Street rates Micron stock as a "strong buy.” Of the 28 analysts who cover MU, 24 recommend it as a "strong buy," two as a "moderate buy," one as a "hold," and one as a "moderate sell."

Analysts have set a mean price target for Micron stock of $125.53, which is 15% higher than current levels. Its Street-high target price of $225 indicates a massive potential upside of 106.2% over the next 12 months.

The Bottom Line On MU Stock

While the chip sector has entered correction territory due to slowing demand, a lot of experts think the market is overreacting. Moor Insights and Strategy Founder and CEO Patrick Moorhead believes that uncertainty about geopolitical tensions and inflation has caused investors to be more cautious.

Nonetheless, AI still has the potential to propel the semiconductor industry to great heights. Micron's innovative product portfolio has repeatedly shown its ability to thrive in this fiercely competitive industry. I believe Micron's stock is an excellent opportunity for investors to capitalize on technological advancements and market growth.

The market's overreaction has caused Micron's stock to drop 16% from its all-time high, creating a buying opportunity for long-term investors.