Shares of memory-chip maker Micron (MU) have been on an incredible rally in recent months, surging nearly 50% of its 52-week low to flirt with highs near $100 per share.
There’s no question that Micron has benefited greatly from the booming demand for memory and other chips. Looking ahead, memory demand will likely remain strong, as hunger for next-generation hardware, ranging from EVs to VR headsets, looks to surge.
Supply chain disruptions have dealt a significant blow to the broader chip space, and Micron has not been spared. As such COVID-19-induced supply-side constraints ease, look for Micron and the broader chip space to continue building on the strength of their recent rallies.
Even after supply and demand push towards equilibrium in 2022, hunger for hardware could sustain for many years down the road. It’s no longer just the latest and greatest smartphones or personal computers that could fuel growing demand. A growing number of connected devices will play an increasing role in our lives.
Indeed, potential growth in demand for memory chips could have the potential to be far greater than expected if autonomous vehicles and the metaverse are ready for prime sooner rather than later.
Given potential tailwinds and a still modest valuation, I am bullish on shares of Micron.
Micron Posts Impressive Quarterly Beat for Fiscal Q1 2022
Micron stock added to its recent rally following the release of some solid fiscal first-quarter 2022 numbers. Demand was robust across the board, with mobile memory, HDD, and SSD experiencing solid sales. With downbeat expectations for the next quarter due to ongoing supply chain woes, the bar seems relatively low.
Undoubtedly, demand is showing no signs of backing down. As Micron navigates through what could be the last of its significant supply-side issues, the stage could be set for a solid year.
Even after Micron’s impressive finish to 2021, the stock hasn’t been nearly as hot as some of its peers in the semiconductor space. Over the past year, MU stock has been outpaced by the broader S&P 500, rising just 12%. With Micron stock trading at just 14 times trailing earnings, 3.7 times sales, and 2.2 times book value, it’s tough to ignore the value proposition.
Micron Stock: Is the Hardware Discount Warranted?
Indeed, the memory chip market is quite crowded, and demand can be prone to big ups and downs.
In such a competitive landscape, Micron runs the risk of reducing prices if it were to be edged out by the likes of a rival. To stay ahead of the competition, Micron is expected to funnel considerable amounts into R&D initiatives to stay ahead and avoid feeling the negative impacts of memory chip commoditization.
Given the furiously competitive nature of the industry, it’s not a mystery why Micron stock is trading at such a sizeable discount. I think the discount in Micron stock is overdone, and the company can stay well ahead of the pack as it looks to capitalize from a robust demand through the decade.
Wall Street’s Take
Turning to Wall Street, MU stock comes in as a Strong Buy. Out of 24 analyst ratings, there are 19 Buys, four Holds, and one Sell rating.
The average Micron price target is $111.52, implying 23.7% upside potential. Analyst price targets range from a low of $58.00 per share to a high of $165.00 per share.
The Bottom Line on Micron Stock
The cyclical memory chip space may be choppy for investors who lack a stomach for volatility.
That said, long-term secular trends are likely to continue working in favor of Micron as it moves past bottlenecks this year, all while the firm looks to out-innovate its peers and stay ahead in a commoditized market.
My takeaway? Micron is an intriguing value option in an otherwise lofty market.
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