Investing

Wall Street Expert Expects This AI Stock to Pop Over 138% This Year

Omor Ibne Ehsan

Published: January 23, 2025 2:37 pm

Micron (NASDAQ: MU) makes memory chips and storage for phones and computers. However, these chips can also be used for data centers and it is now one of the key players in the AI business.

The stock is down 24% from its peak but analysts are eyeing a massive rebound here. Hans Mosesmann of Rosenblatt Securities and Steve Frankel — also from Rosenblatt Securities — both have a $250 price target on this stock. This is mostly due to Micron’s edge in using DRAM for AI and also for maintaining decent-ish profitability through memory cycles.

24/7 Wall St. Key Points:

• Micron is one of the “cheapest” AI stocks you can grab right now.
• It has triple-digit upside potential and is trading at a discount.
• However, it does have some problems you should look into before you head over to your broker. Also, don’t forget to look into our free “The Next NVIDIA” report.

Micron is more important than you think in the AI industry. AI models are very memory intensive and it is only going to get more demanding on memory as AI models start moving beyond text-based models to models that can generate videos.

Micron Is Pretty Cheap

MU stock trades at 15 times forward earnings and about 3.4 times forward sales. You wouldn’t hear anyone call such stocks “cheap” a few years back, but any stock that is affiliated with AI in any way and has double-digit growth is certainly cheap with those multiples.

Micron is expected to grow its EPS from $6.9 in FY2025 to $11 in FY2026. Sales are also expected to grow 39% in FY2025 and 27.6% in FY2026. Any other AI stock with such fundamentals would trade at a much higher valuation. It doesn’t even have that much debt (at around $14.4 billion) compared to many other AI companies.

Investors who’d been waiting for a turnaround in the memory industry appear to be betting big and are viewing Micron’s performance as a sign that the memory market is on a meaningful upswing after a rough patch over the past couple of years.

Why Investors Can Still Keep Micron’s Valuation Low

You may wonder how much of Micron’s revenue is actually derived from the AI industry. And surprisingly, around 50% of Micron’s revenue comes from data center-related demand. Data center revenue grew 40% sequentially and more than 400% year-over-year. Data center revenue growing over 40% sequentially and more than 400% year-over-year.

However, there’s one reason why investors could continue keeping Micron’s valuation relatively low compared to other AI companies: commoditization. What Micron sells is DRAM and NAND memory chips and these products are largely standardized and can be replaced very easily, regardless of the brand. And because of that, Micron can’t keep a stable sales and profitability profile over the longer run. Customers can easily switch to one of its competitors, so there isn’t a big moat here.

And as I said previously, this is an industry that is considered cyclical. Nonetheless, I do believe there are counter-arguments to be made here. The GPU market is also considered cyclical, but AI demand has alleviated a lot of those fears, and I think the same should be considered here. I also think you should look into who Micron’s competitors are, and I’ll be discussing them in the next section of this article.

Could Tariffs Help Micron’s Market Share?

Micron’s major competitors are Samsung and SK Hynix. Both are based abroad and I think that tariffs could allow Micron to partially mitigate its biggest drawback.

In the NAND sector, Samsung leads with a market share of roughly 36.9%, followed by SK Hynix/Solidigm at 22.1%, Kioxia at 13.8%, and then Micron at 11.8% as of Q2 2024. Over the same period, Western Digital (NASDAQ: WDC)  (in a joint venture with Kioxia) held 10.5%. In the DRAM market, Samsung held 42.9%, SK Hynix 34.5%, and Micron 19.6%.

Thus, I think there’s a lot of room for Micron to grow if this industry is hit with tariffs by the new Trump administration.

What Other Wall Street Analysts Think About MU Stock

Most other analysts don’t expect such stellar performance from MU stock in the next twelve months. There are 22 ratings on the stock in the past three months: 20 Buy and 2 Hold. The consensus price target is at $136 and implies a 28.6% upside potential.

I think the consensus upside potential is more realistic. JPMorgan sees relatively stable DRAM pricing in the first half of 2025 and possibly an increase in gross margins by up to 50 basis points. However, I don’t think see any positive catalysts that could cause a 138% increase this year.

The Bottom Line

If you think Micron’s reputation of being in a cyclical industry with stronger foreign competitors is going to change due to booming AI demand and possible tariffs, I think this is a good buy right now.

That said, ultra-bullish forecasts of over 100% seem too optimistic to me and Micron will likely still face price swings regardless. But you do have a plausible case for outsized gains.