On Thursday, Micron Technology (NASDAQ:MU)'s stock received a significant boost in confidence from a Rosenblatt, which raised its price target for the shares to $225 from the previous mark of $140, while reiterating a "Buy" rating. The adjustment comes in the wake of Micron's impressive performance in its February quarter and its positive outlook for the May quarter.
The investment firm highlighted Micron's strong momentum in artificial intelligence, a general market recovery, and a swift impact on DRAM supply due to aggressive allocation for HBM3e wafers, which require three times as many wafers compared to DDR5. HBM3e is expected to be a major driver behind the DRAM structural shortage through 2025, with nearly full allocation for that year already in place.
Micron is anticipated to increase its market share in the HBM sector from negligible to over 20 percent, benefiting from industry shortages and more energy-efficient solutions compared to competitors.
By the end of fiscal year 2024, Micron predicts a decrease in wafer capacity compared to peak levels in FY22, while demand for DRAM—and NAND—is projected to outpace supply growth, which is anticipated to fall short of the mid-teens demand growth level for 2024. Consequently, pricing is expected to rise quarterly throughout the year.
Rosenblatt's analysis suggests that the upcoming memory cycle, underpinned by a transformative AI cycle in computing, could be the largest ever witnessed. This cycle, referred to as the "mother of all cycles" (MOAC), is expected to revolutionize computing in a lasting way. The firm asserts that traditional methods of forecasting using historical DRAM channel checks or comparisons to past semiconductor cycles are not adequate for understanding the scope and duration of this unprecedented MOAC.
The new price target of $225 is based on a conservative estimate of a $14 earnings run rate for calendar year 2025, with the firm noting that the actual earnings power could be as high as $20. This optimistic outlook reflects the firm's belief in the sustained growth and profitability of Micron Technology amidst the burgeoning AI server market, which will transition to HBM4, further intensifying wafer demand for more complex silicon and higher stack counts.
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