Prediction: This Will Be Micron's Stock Price By the End of 2027

Micron Technologies (NASDAQ: MU) has long been a relatively boring investment. After it peaked during the dot-com bubble in 2000, the company faced a long-lasting slump as modest demand and intense competition eroded its growth prospects relative to other tech giants. However, everything changed in 2022 when the release of ChatGPT sparked an entirely new industry: generative artificial intelligence (AI).

Micron's shares have risen by an eye-popping 333% over the last 12 months alone as data center clients scramble to purchase its advanced memory hardware. But even though demand shows no signs of slowing any time soon, there is reason to be nervous. Let's dig into Micron's pros and cons to decide how much shares might be worth by the end of 2027.

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The bottleneck in the AI industry

The early phases of the generative AI boom were driven by chipmakers like Nvidia, which supplied graphics processing units (GPUs) and other types of compute hardware needed to run and train large language models. However, as these chips became more powerful, a bottleneck emerged in the supply of memory hardware capable of keeping up. Micron is in the right place at the right time to cash in on the windfall.

Fourth-quarter revenue skyrocketed by a jaw-dropping 379% year over year to $54.23 billion. This is the type of growth you typically see in a small penny stock, not a 48-year-old behemoth. And it wasn't only driven by data center and cloud computing-related sales. Micron is enjoying strength across all its segments as memory shortages have led to higher margins in less-glamorous opportunities like mobile and automotive.

Micron's profitability growth is even more breathtaking, with fourth-quarter net income surging more than 10-fold to $37.7 billion. The company will likely return some of this to investors through a buyback program with $35.7 billion in share repurchases authorized.

What is happening in South Korea?

But if Micron's business is doing so great, why is its stock so cheap at a forward price-to-earnings (P/E) of just 7 compared to the S&P 500 average of 19? To answer that question, we need to look at what is happening in South Korea, home to Micron's biggest rivals, Samsung Electronics and SK Hynix, both of which also produce high bandwidth memory.

The country's KOSPI Index is dominated by chipmakers, and it has cratered by over 40% since its peak in June, erasing more than $2 trillion in value. This crisis resembles the scale of crashes like the dot-com bubble burst, and it is being driven by fears that rising bond yields will make it more expensive for AI companies to buy memory chips. Investors are also worried about rising Chinese capabilities.

This month, Chinese memory producer CXMT announced plans to roll out new server memory products based on breakthrough designs. It is becoming clear that the upstart could soon become a bona fide competitor to the established giants, raising fears of margin-eroding competition and a race to the bottom -- similar to what happened to other industries China has taken over, like electric cars and solar panels.

The Korean stock market crash may be an early warning of what high-flying American chip stocks might soon face. And Micron is particularly exposed because it operates on a business model similar to that of South Korea's giants.

Where will Micron's stock be by the end of 2027?

Some South Korean experts are now predicting a memory chip supply glut by 2029. And if this happens, Micron could easily find itself facing years of stagnant performance, similar to what happened after the dot-com bubble. These uncertainties will likely be priced into Micron's stock price over the next few months, and investors shouldn't expect the stock to exceed its current price of $879 by the end of 2027.

Will Ebiefung 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.