Could Micron Technology Stock Hit More Than $1,600?

Micron Technology (NASDAQ: MU) reached a market cap of $1 trillion on Tuesday, after receiving a huge upgrade from an analyst. With a new price target of $1,625 from UBS analyst Timothy Arcuri, investors saw more reason to be bullish on this already scorching-hot stock. Entering trading on Wednesday, the stock has soared by around 880% over the past 12 months. That means a $10,000 investment in the company a year ago would now be worth nearly $100,000.

It's a staggering return. But with an even higher price target, investors may be convinced that it has even more upside still left. Could Micron really still be a bargain buy at its current price?

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Most analysts aren't nearly as bullish

Analyst price targets can vary significantly for a stock. And while analysts have largely been raising their price targets for Micron in recent months, the consensus average is around just $570 right now -- suggesting the stock may have a downside risk of approximately 38%.

Arcuri's justification for the increase in price is due to Micron's modest price-to-earnings (P/E) ratio. Based on its expected future profits, Micron looks cheap, trading at a multiple of only nine. By comparison, the S&P 500 average is 26, and tech giant Nvidia is not far behind with a forward P/E of nearly 25. The logic is that for Micron, its business should be valued higher with respect to earnings.

However, there arguably needs to be some compensation for risk. Nvidia's business is larger, more robust, and potentially much less volatile than Micron's. While demand for Micron's memory products is through the roof right now, that may not hold over the long run, and historically, it has experienced volatility. While investors may want to believe this time is truly different due to spending on artificial intelligence (AI), it may not turn out to be the case. And if there is a slowdown in its impressive growth, the stock could have plenty of room to fall.

Why I wouldn't count on Micron's stock hitting $1,600 anytime soon

Analyst price targets typically look at where a stock might go within the next year or so. To rise to $1,600, Micron's valuation would increase by more than 70%, to a market cap of around $1.8 trillion -- that's higher than Meta Platforms and Tesla.

Unless Micron turns into a full-blown meme stock, I'd be surprised to see it reach such levels. Even now, with a market cap of over $1 trillion, its valuation is rich. And with that tied heavily to AI-related spending, the tech stock looks risky. While Micron's been a hot stock over the past year, I wouldn't rush to buy it at its current price.

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