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Micron Technology (NASDAQ:MU) shares continue to be volatile. Down 23% in a month, Micron stock is still up 690% in the last year, making it one of the star performers in the US stock market. Yet with some starting to get a bit worried about semiconductor stocks after the strong rally, where could the share price head over the coming year?
The memory king
Micron has become one of the biggest winners of the AI revolution because of the production of its memory chips. Interestingly, only three companies globally can produce high-bandwidth memory at scale. Micron is one of the three, with the other two being SK Hynix and Samsung.
That scarcity has given the company crazy pricing power. For example, in the latest quarterly update, it recorded a gross margin of 84.6%, and earnings that continue to comfortably beat market expectations.
The demand is causing revenue and profits to spike, which in turn is pushing the share price higher. Latest quarter revenue was $41.46bn versus $23.86bn for the prior quarter and $9.3bn for the same period last year. That’s a staggering pace of growth.
However, the concern for an investor right now is where the stock goes from here, as the market now has very high expectations and valuation for the company.
The direction from here
Looking ahead 12 months, I believe the stock could finish around $1,200, representing a 30% gain from the current price of $900. I’ve chosen this level because it’s close to the all-time highs for the company, posted earlier this year. Some might think that’s optimistic, but I think it’s an achievable target if AI infrastructure spending remains robust.
The biggest catalyst would be continued strength in memory pricing alongside another year of earnings upgrades. If management delivers on guidance and expands production without flooding the market, I don’t see why investors won’t keep buying the stock even with its spectacular run. AI usage is still forecasted to grow at a rapid pace in the coming years, so I don’t think we are remotely close to this sector maturing and growth slowing down.
However, my price target is only set to the current highs, as I struggle to see it delivering another 690% move in the next year.
And I could be wrong, plus there are risks anyway. Indications that hyperscalers are slowing AI spending would negatively impact the stock. Another risk is if new competition emerges from Chinese memory producers. I’m pretty sure many countries are working to develop their own supply chains in this key area, which could erode Micron’s dominance.
So, £3,846 could turn into £5,000 if my forecast is correct. But as I said, this is just my view and the stock price could also head downwards. But I’m seriously thinking about adding it to my portfolio, and like-minded investors could consider doing the same.
Should you invest £5,000 in Micron Technology right now?
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Jon Smith does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
