In 2025, a Notable Semiconductor Company's Shares Worth Buying in Large Quantities, Suggests Wall Street's Analysts
In 2025, a Notable Semiconductor Company's Shares Worth Buying in Large Quantities, Suggests Wall Street's Analysts
The semiconductor market is leading the charge in the artificial intelligence (AI) revolution. While many investors are concentrated on Nvidia (NVDA 0.35%), it's not the sole semiconductor company profiting from this technological boom.
Micron Technology (MU -3.62%) is a leading provider of memory and storage chips, which are crucial components in the AI hardware story. Consequently, the company's data center revenue is skyrocketing, but it also finds significant AI opportunities in the smartphone and personal computing (PC) sectors.
On December 18, 2024, Micron announced impressive financial results for its first quarter of fiscal 2025 (ending Nov. 28), however, its stock took a 12% dive in after-hours trading. Despite the Nasdaq-100 technology index dropping 3.6% that day, Micron's stock wasn't immune to the market's losses.
This downturn might present an appealing opportunity for investors looking ahead to 2025. The Wall Street Journal reports that a vast majority (43 out of 43) of analysts covering Micron stock have assigned it the highest buy rating.
AI-driven demand for increased memory capacities
Memory chips are integral to the graphics processors (GPUs) supplied by Nvidia. By storing information in a ready state, they enable fast data retrieval, which is essential in AI-intensive workloads. As AI models rely on vast amounts of data, they necessitate substantial memory capacity.
Micron's HBM3E solutions are regarded as the best in the industry, offering 50% more capacity and consuming 30% less energy compared to competing hardware. This is the reason why Nvidia selected Micron's HBM3E to power its new Blackwell GB200 data center GPU, marking Nvidia's most powerful AI chip to date.
Micron's memory chip inventory for data centers is exhausted until 2026, yet it's unrelenting in its pursuit of innovation. Micron is already working on an HBM4E solution, promising a 50% performance increase compared to its HBM3E hardware. The annual market value for data center HBM is estimated at $16 billion presently, yet Micron anticipates a 600% growth by 2030, making maintaining a technological edge vital.
However, Micron's AI quest extends beyond data centers, as PCs and smartphones can undertake some AI tasks without external processing power. According to Micron, modern PCs requiring AI processors need a DRAM memory capacity between 16 and 24 gigabytes, whereas non-AI PCs in 2024 averaged 12 gigabytes of DRAM content. The increase in capacity corresponds to more expensive DRAM chips, resulting in higher revenue for Micron.
Smartphones, too, are leveraging Micron's hardware. In the recent quarter, more than 60% of new devices required at least 8 gigabytes of memory capacity, a considerable increase compared to last year. Furthermore, smartphone manufacturers using the Android mobile operating system have introduced AI devices with 12 and 16 gigabytes of memory, underscoring the rapid expansion of capacity.
Micron's revenue growth is accelerating, driven by data centers
Micron amassed a record $8.7 billion in total revenue during its first quarter of fiscal 2025, representing an 84% surge year-over-year. The genuine growth story, though, lies beneath the surface.
Micron reported that its data center revenue surged by 400% year over year, accounting for more than 50% of the company's total revenue for the first time. The momentum is expected to persist into the following quarters, as HBM shipments are beating initial expectations.
Micron's mobile segment revenue increased to $1.5 billion, a 15% rise compared to the year-ago period, although it decreased sequentially compared to the third quarter. AI looks set to bolster demand for higher DRAM capacity, thereby making 2025 an auspicious year for the mobile segment as well.
Micron's profitability saw a surge with its rapid revenue growth and strategic expense management. Its non-GAAP (generally accepted accounting principles) EPS came in at $1.79 during the quarter, a dramatic improvement from the $0.95 per-share loss it posted in the same quarter a year earlier.
Micron's profitability tends to fluctuate due to the cyclical nature of the semiconductor industry, but issues like high inventory levels and soft prices affected its profitability in the first half of fiscal 2024, while 2025's first quarter saw less prevalent issues. Micron also benefited from the AI tailwind that aided its recovery.
Given that AI products like HBM3E are already out of stock for the following year, they add some predictability to Micron's financial forecasts. According to Wall Street's consensus estimate (as provided by Yahoo!), the company is predicted to deliver $8.90 in EPS for the entirety of fiscal 2025. This places Micron's stock at a future price-to-earnings (P/E) ratio of merely 10.2.
This represents a 65% discount compared to Nvidia's future P/E ratio of 29.6. Given Micron's significant growth in the data center sector at present, I'd argue that this current discount is significantly overstated. After all, Micron's HBM3E sales will be closely connected to Nvidia's GB200 sales in the future - so if you anticipate that Nvidia will sell a lot of AI processors, it's hard to maintain a bearish outlook for Micron's future performance.
This could explain Wall Street's persistent optimism towards Micron stock. Among the 43 analysts tracked by The Wall Street Journal, 29 have given it the highest buy rating. A further 10 are in the overweight (bullish) category, with three recommending a hold. The only analyst in the entire group suggesting a sell is in the minority.
The analysts have an average target price of $146.82 for Micron stock, indicating a potential increase of 61% over the next 12 to 18 months. The highest target price of $250 suggests a potential increase of 174%.
Consequently, investors who are looking for value in the rapidly expanding AI semiconductor market might want to consider adding Micron stock to their portfolio for the upcoming year.
After analyzing the text, here are two sentences containing the words 'finance', 'money', 'investing':
Given Micron's significant growth in the data center sector and the persistent optimism from Wall Street analysts, investing in Micron stock could be a financially rewarding decision for those seeking value in the AI semiconductor market. As the annual market value for data center HBM is estimated to grow by 600% by 2030, investors might consider Micron as a potential source for substantial returns on their investment money.