Up Over 700% in 12 Months, How Much Higher Can Micron Technology's Stock Go?

When a stock is surging in value, it can be both frustrating and enticing. On the one hand, you want to buy into the rally, but on the other, you're worried it's priced too high and you might end up buying at the peak.

Investors considering Micron Technology (NASDAQ: MU) stock may have that dilemma right now. In just the past year, the stock has shot up more than 700%. Many investors would be happy with those kinds of gains over a period of five or 10 years, let alone just 12 months. Its valuation is now around $900 billion, thanks to skyrocketing demand for its memory and storage products.

Could the stock be destined to go even higher, or is it likely too late to invest in Micron Technology?

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Why there could still be more of a rally ahead for the stock

Micron's valuation looks high, but given the earnings growth it has achieved and what analysts expect from the stock, its valuation is arguably modest. The stock is trading at a forward price-to-earnings (P/E) multiple of less than eight, which is absurdly low for a growth stock that's benefiting from a surge in demand. Even if it were at double that rate, it would still be well below the forward P/E that the S&P 500 averages -- 22.

According to Chey Tae-won, chairman of SK Group (which owns the South Korean semiconductor giant SK Hynix), a chip wafer shortage could very well drag on into 2030. If that's the case, then prices for memory products may continue rising, and thus, Micron's financials may look even better in the future. That would be incredible given that Micron has reported $24 billion in profit over the past four quarters on revenue totaling $58 billion, for an impressive net margin of 41%.

Why I think it could peak at around $900

Micron's stock is currently trading at around $800, but if it rises by another 11% or so, its valuation will top $1 trillion. That would be a huge milestone for the business; however, it would also put an exclamation mark on just how significant its rally has become and may lead investors to question whether it's truly a trillion-dollar business, given that demand for memory and storage products has historically been cyclical.

Market sentiment remains strong, and as long as the outlook is favorable, I believe Micron's stock will keep on rising. But it may have a hard time soaring a whole lot higher once it gets close to $1 trillion in market cap, which is why I believe its peak, at least in the short term, may be around $900.

However, Investors should be careful because if there are any signs of demand slowing or tech companies cutting back on their spending, the stock could have a long way to fall. Projections are rosy right now, but they may not stay that way. If you're buying the stock, you may want to keep a close eye on industry and overall market conditions.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.