Why Micron Stock Will Continue to Benefit from the AI ​​Boom – TradingView News

Micron technology MU, which makes computer memory chips, is benefiting from several strong, positive catalysts. These drivers include rapidly increasing demand for its products for use in artificial intelligence (AI) systems and new AI server chips that the company has recently started offering. The latter chips tend to be more profitable than the older products.

What is also positive for Micron Technology shares is that several Wall Street banks have issued very positive reviews of the chip manufacturer in recent months, while the share valuation remains quite low. Finally, but more importantly, the company reported excellent quarterly results in March. Given these points, I recommend growth investors buy the shares.

The spread of AI is a positive force for growth

The spread of AI was one of the factors that boosted Micron’s financial results last quarter. That’s because high demand for AI servers allowed the company to sell more chips for those devices, CEO Sanjay Mehrotra explained in the company’s earnings release. In addition, the strong interest in AI servers allowed the chip manufacturer to significantly increase the prices of the chips. Because of these trends, memory chip prices are expected to continue rising throughout 2024, Mehrotra explained.

In February, Micron announced that it had begun producing large quantities of its new high-bandwidth chip, the High Bandwidth Memory 3E solution, also known as HBM3E. In a note to investors on May 6, investment bank Baird wrote: “HBM3E has the potential to generate over 60% gross margin for Micron next year.” The company’s overall gross margin was just 18.5% last quarter.

Baird said HBM3E’s revenue could grow 150% in 2025 and generate 20% of the company’s total dynamic random access memory revenue next year. Because Micron will sell many more of these high-margin chips in 2025, its overall profit margins and bottom line are expected to skyrocket next year.

The Street is more bullish on MU stock

In addition to the boost Micron will receive in 2025 from its HBM3E chip, the company’s financial results are currently being boosted by high DRAM prices, Baird noted. The bank raised its rating on Micron shares to “Outperform” and raised its price target on the stock from $115 to $150.

Citi was also recently bullish on Micron Technology stock. Citing high DRAM prices and strong demand for the company’s high-bandwidth memory, the bank predicted on April 5 that Micron’s financial results going forward would exceed analysts’ average estimates. In 2025, Micron’s “high-bandwidth memory sales” could reach $3 billion, according to the bank, which maintained a $150 price target and a “buy” rating on the chipmaker.

For its part, JPMorgan noted that the company’s supply of HBM3e chips for the rest of this year and most of 2025 has already been sold out. The bank increased its price target on the shares to $130 from $100 and maintained an Overweight rating.

Excellent Q3 results and a low rating

In Micron’s fiscal second quarter, which ended in February, revenue rose 58% from the same period last year, while operating cash flow more than tripled to $1.4 billion, compared with $343 million in the second quarter of the previous year.

Micron Technology stock is up 40% so far this year, but still has a low forward price-to-earnings ratio of 16.8.

At the time of publication, Larry Ramer did not hold, directly or indirectly, any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s publication policies

Larry Ramer has been researching and writing articles on U.S. stocks for 15 years. He was employed by The Fly and Israel’s largest business newspaper, the Globes. Larry began writing columns for InvestorPlace in 2015. His highly successful, controversial favorites included SMCI, INTC and MGM.

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