Why This Semiconductor Stock Could Surge 65% in the Next 12 Months

Surging memory prices from artificial intelligence (AI) demand have sent Micron Technology (NASDAQ: MU) shares soaring over the past 12 months. In its recently completed fiscal second quarter, revenue nearly tripled year over year, and management guided for another record quarter for Q3.

With earnings expected to rise sharply this year and next, the stock could move substantially higher. A reasonable estimate could justify the stock climbing another 65% to nearly $700 in the next 12 months. Here's the opportunity Micron is pursuing, along with the potential pitfalls to watch for.

Image source: Micron Technology.

AI data centers are starved for memory

Micron is one of the leading suppliers of memory and storage, including DRAM and NAND. High-performance versions of these products used in AI data centers are driving higher selling prices and leading to record financial results for Micron.

During the last earnings call, CEO Sanjay Mehrotra called memory a "defining strategic asset in the AI era." High-end AI chips can't function without it. Micron expects the supply of both DRAM and NAND to exceed demand throughout the calendar year 2026.

Historically, the memory and storage markets are cyclical, with repeated boom-and-bust cycles. These cycles are usually caused by suppliers overspending on production capacity, leading to excess supply and lower selling prices.

However, Micron is working to correct this. It recently signed its first five-year strategic customer agreement. If it can sign more, it could help lock in long-term demand, allowing management to better plan its production capacity to maintain stable selling prices and avoid the usual boom-and-bust pattern.

This offers an attractive setup for investors. At the current $420 share price, the forward price-to-earnings (P/E) multiple is about 7 based on the current fiscal year's earnings estimate. However, if Micron remains on track to hit the consensus $99 earnings estimate next year and the stock trades at the same forward earnings multiple one year from now, the share price would be about $693, representing about 65% upside from the current share price.

But this upside comes with risks.

Risks to watch

Micron is expanding manufacturing capacity, which could enable even more shipments by the middle of calendar 2027. The expanding capacity could benefit the company by allowing it to sell more products into a strong market, but it could also be a double-edged sword.

If the extra capacity causes supply to exceed demand, Micron could see lower selling prices, leading to lower revenues and earnings. This explains why analysts are currently calling for earnings to fall back to $78 in fiscal 2028. Wall Street is betting that memory price volatility will return at some point, but that doesn't mean the stock can't hit new highs before the next downturn.

A cyclical memory market remains the biggest long-term risk, but management's outlook suggests AI demand is not easing anytime soon. If memory pricing stays firm and the company signs more long-term customer agreements, this could boost investor sentiment and send Micron's stock higher over the next 12 months.

John Ballard 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.