Why Micron Stock Popped Again Today
Key Points
Melius Research initiated coverage on Micron with a buy rating and a $700 price target.
Semiconductor stocks are usually cyclical, but Melius thinks this time is different.
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Micron (NASDAQ: MU) stock closed last week at an all-time high near $497 a share -- and it's starting this week off right, too.
Shares of the computer memory-maker jumped 4.8% through 10:25 a.m. Monday after Melius Research rated Micron "buy" with a $700 price target. Melius thinks Micron will gain another 41% over the next 12 months.
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Why Melius loves Micron
Micron makes computer memory, which works in tandem with artificial intelligence chips to power the AI revolution. Melius argues in a note covered on TheFly.com that this revolution is still in early innings -- and may last "through the end of the decade."
As Melius explains, demand for high-bandwidth memory and the high profit margins Micron is earning are "unusual." Investors are having a hard time believing demand will last long, or profit margins remain high long-term -- worrying the semiconductor market will do what it always does, and quickly turn from an up-cycle into a down-cycle. Once investors realize this time is different, however, they'll pay higher multiples to earnings for Micron -- and Micron stock will move higher.
What's next for Micron stock?
But what if Melius is wrong? What if the semiconductor industry remains as cyclical as it always has been? What if this time is not different?
In contrast to rival Sandisk (NASDAQ: SNDK), which only recently turned profitable, Micron earned positive profits in four of the past five years. Even better, last year's $7.59 profit could grow 660% this year if analyst estimates are correct -- then hit $98 in 2027 before starting to slide. By 2030, Micron could still be earning more than $27 a share.
For a stock that costs only $517 today, that's a 19 P/E ratio at the end of the cycle. Sounds cheap to me!
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Rich Smith 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.
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