‘See You at $1,000,’ Says Analyst as Micron Stock Rally Continues

Micron (NASDAQ:MU) kept its astonishing rally alive on Monday, with the AI memory stock charging to yet another record high and extending its gains to 179% year-to-date and an incredible 762% over the past year. The latest uptick coincided with strike threats at rival Samsung, which fueled concerns about a potential global chip shortage.

At the same time, the Street’s biggest Micron bull grew even more confident in his thesis. D.A. Davidson analyst Gil Luria raised his Street-high price target on MU to $1,000, implying the stock could gain another ~26% in the months ahead. (To watch Luria’s track record, click here)

“We are blissfully unencumbered by the memory industry’s past,” said Luria, in reference to the memory industry’s notoriously cyclical nature. “While investors recognize how dynamics have changed in the AI era, many are still anchored to the view of Micron as a flat, highly cyclical business, that as such can trade at <10x.”

Luria does believe investors are aware of the “higher value-add at the high-end HBM, the DRAM oligopoly, and the longer-term contracts.” However, his view is that the market is still underestimating how memory economics are shifting in the AI era.

As models scale up, their memory requirements rise significantly. Larger models also drive greater KV cache needs (which store information about earlier parts of the text so the model does not have to recompute them each time it generates new tokens), which in turn requires even more memory capacity. At the same time, models with longer context windows deliver higher-quality intelligence, further increasing memory needs. Those longer contexts improve model performance, enabling even larger models, so that the “virtuous cycle continues.”

“This means that memory is structurally more important than it has ever been not an afterthought side feature, but rather a key feature of AI compute,” Luria further explained.

Another somewhat counterintuitive point is that memory might now be a more attractive market than CPUs. While the CPU space is becoming more competitive, with Nvidia and Arm Holdings competing for capacity at TSMC, DRAM production remains concentrated among just Samsung Electronics, SK Hynix, and Micron, all of which operate with relatively constrained output.

Memory producers are also still shaped by the experience of the last downcycle and are now “demanding their value.” Unlike CPU vendors, which may keep pricing down to defend share in a more crowded market, memory suppliers appear better positioned to use tight supply conditions to assert pricing power for the foreseeable future.

And that demands a whole new way of thinking about Micron stock.

“We believe investors will rethink the previous punitive valuation framework, creating substantial upside,” Luria opined. “We see no reason why MU shouldn’t move to 10x current run rate earnings this quarter, 10x run rate next quarter ($1,000) and once that barrier is broken to a more normalized mid-cycle multiple for a chip company, dare we say 20x?”

So, that’s Luria’s view, but what does the rest of the Street have in mind for Micron? Based on an additional 26 Buys and 3 Holds, the analyst consensus rates the stock a Strong Buy. However, going by the $581.89 average price target, the shares are now overvalued by ~27%. Given this discrepancy, it will be interesting to see whether analysts boost their price targets or downgrade their ratings shortly. (See Micron stock forecast)

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.