The stock market hasn’t rewarded Micron Technology (NASDAQ: MU) enough for the outstanding growth that it has been delivering in 2024, which is evident from the 26% jump in the shares of the memory specialist so far this year.
It is also worth noting that Micron stock has retreated nearly 30% since hitting a 52-week high two months ago. However, this is good news for savvy investors looking to add a company that’s well on its way to capitalizing on the fast-growing adoption of artificial intelligence (AI) hardware in multiple end markets such as data centers, smartphones, and personal computers (PCs).
Here’s a closer look at the reasons why buying Micron Technology right now looks like a no-brainer.
Micron Technology could sustain its impressive growth in the long run
The memory industry in which Micron Technology operates has been a cyclical one in the past, going through boom-and-bust cycles based on demand-supply dynamics. When demand for memory chips used to jump, chipmakers such as Micron usually ramped up production to meet the same. However, a dip in demand meant that they were left with more supply on their hands, leading to a sharp decline in prices that crushed their revenue and margins.
The good news is that the memory industry’s boom and bust cycles are likely over. Grand View Research estimates that the global memory market’s annual revenue could increase from $111 billion in 2024 to $240 billion in 2030. AI is all set to play an important role in this market’s growth, as demand for high-bandwidth memory (HBM) that’s used in making AI chips is growing at a much faster pace.
More specifically, the HBM market is estimated to hit annual revenue of almost $86 billion in 2030 compared to $1.8 billion last year, clocking a compound annual growth rate of 68% through this period. Even better, this is not the only market where AI is set to drive a big jump in memory consumption.
According to Micron, AI-enabled PCs that are powered by neural processing units to tackle AI workloads are expected to carry 40% to 80% more dynamic random access memory (DRAM) to enable faster computing. Similarly, Micron points out that flagship Android smartphones are sporting a 50% to 100% increase in DRAM content over last year’s models to support generative AI applications.
If we take a closer look at the potential growth these three markets are slated to clock in the long run, it will become evident that Micron is at the beginning of a big growth curve. The global data center market, for instance, is expected to triple in revenue between 2024 and 2034, generating an annual revenue of $776 billion after a decade.
The market for AI-capable smartphones, on the other hand, is expected to grow at an annual pace of 28% through 2030. Also, the global PC market is expected to see a healthy annual growth rate of 8% through 2030 and generate nearly $257 billion in annual revenue. So, Micron’s business has multiple growth drivers that could keep the memory industry from going bust once again.
That’s why analysts are expecting the company to sustain its impressive growth over the next couple of fiscal years, following this year’s estimated increase of 61% in its top line to $25 billion.
The valuation and potential upside make the stock a no-brainer
We have already seen that Micron is delivering outstanding top-line growth. More importantly, that’s set to drive a meaningful increase in its bottom line as well. The company made a loss of $4.45 per share last year, and the chart tells us that it will be back in the black in the current fiscal year. More importantly, Micron’s earnings growth forecast for the next couple of years is quite solid as well.
Considering the outstanding growth that this semiconductor stock is likely to deliver, buying it right now is a no-brainer. That’s because Micron is currently trading at just 11.7 times forward earnings, a huge discount to the Nasdaq-100 index’s forward earnings multiple of 27 (using the index as a proxy for tech stocks).
Citigroup recently reiterated a $175 price target on Micron and reaffirmed its buy rating on the stock, pointing toward a 62% increase from current levels. Meanwhile, the stock has a median 12-month price target of $165 as per 41 analysts covering Micron (of which 93% rate it as a buy). That would be a 54% increase from current levels.
So, investors would do well to buy Micron Technology before its stock market recovery gathers momentum, considering its hugely attractive valuation and terrific growth prospects.
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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Down 30%, Now Is a Great Time to Buy This Artificial Intelligence (AI) Growth Stock While It Is Incredibly Cheap was originally published by The Motley Fool
Source: finance.yahoo.com