The semiconductor industry is at the heart of the artificial intelligence (AI) revolution. Most investors are focused on Nvidia (NVDA 3.08%) The company makes data center chips that are ideal for AI development, so it’s no surprise that it’s not the only semiconductor company benefiting from this technology boom.
micron technology (MU 3.48%) is a leading supplier of memory and storage chips that have become a critical component of the AI hardware story. As a result, the company’s data center revenues are currently skyrocketing, but it also faces big AI opportunities in the smartphone and personal computing (PC) space.
Micron announced strong financial results for the first quarter of fiscal 2025 (ending November 28) on Wednesday, December 18, but its stock price fell 12% in after-hours trading. However, it was a bad day for the overall stock market, as the Nasdaq 100 Technology Index fell 3.6% on the day, the second biggest decline of 2024 so far.
So this could be a great opportunity for investors heading into 2025. The Wall Street Journal tracks 43 analysts covering Micron’s stock, and the overwhelming majority give Micron the highest possible buy rating. Here’s why the Street is bullish.
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AI workloads are driving demand for larger memory capacities
The memory chips complement the graphics processor (GPU) provided by Nvidia. Store information ready so you can recall it quickly. This is essential for data-intensive AI workloads. Today, many AI models rely on trillions of data points and therefore require large amounts of memory capacity.
Micron’s HBM3E (High Bandwidth Memory) solution is the best in the industry, delivering 50% more capacity than competing hardware while consuming 30% less power. That’s why Nvidia chose Micron’s HBM3E to power its new Blackwell GB200 data center GPU, the company’s most powerful AI chip to date.
Micron will completely sell out its data center memory chips by 2026, but it’s not resting on its laurels. The company is already working on a new HBM4E solution, which offers a 50% performance increase compared to HBM3E hardware. The market value of data center HBM is currently around $16 billion annually, but Micron predicts that number will increase to $100 billion by 2030. Maintaining a technological edge is key to capturing as much of that value as possible.
But Micron’s AI opportunity extends beyond the data center, as PCs and smartphones can process some AI workloads on-device without requiring external computing power. According to the company, PCs equipped with AI processors require 16 to 24 gigabytes of DRAM memory, while the average DRAM capacity of non-AI PCs last year was 12 gigabytes. More capacity means more expensive DRAM chips and more revenue for Micron.
On the smartphone side, more than 60% of new devices using Micron hardware in recent quarters required at least 8 gigabytes of memory capacity, which is a significant increase from last year. The company recently told investors that capacity is rapidly increasing, with many smartphone manufacturers using the Android mobile operating system introducing AI devices with 12 and 16 gigabytes of memory.
Micron’s revenue is growing rapidly, centered on data centers.
Micron posted total revenue of $8.7 billion in the first quarter of fiscal 2025, an impressive 84% increase year-over-year. But the real story lies beneath the surface of the headline numbers.
Micron specifically said data center revenue increased 400% year over year to $4.4 billion. This accounts for more than 50% of the company’s total revenue for the first time, and with HBM shipping ahead of schedule, that momentum is likely to continue into the next few quarters.
Micron’s mobile division’s revenue was $1.5 billion, a modest 15% increase year-over-year (though it was a sequential decline compared to the three-month-old quarter). As mentioned earlier, AI should continue to drive demand for higher capacity DRAM. Therefore, 2025 will be a strong year for the mobile sector.
The company also achieved rapid revenue growth, combined with prudent expense management, and profits soared. Non-GAAP earnings per share (EPS) for the quarter was $1.79, up from a loss of $0.95 per share in the same period last year.
Due to the cyclical nature of the semiconductor industry, Micron’s profitability tends to be volatile. For example, high inventory levels and weak pricing in the first half of fiscal 2024 resulted in non-GAAP EPS of only $1.30 for the entire fiscal year 2024. These issues were less prevalent in the first quarter of fiscal 2025, and the company also benefited from tremendous AI tailwinds.
Wall Street is bullish on Micron stock
AI products like HBM3E are already sold out next year, adding some predictability to Micron’s financial results. According to Wall Street consensus estimates (provided by Yahoo!), the company is on track to deliver EPS of $8.90 for the full fiscal year 2025, giving its stock a forward price-earnings ratio of just 10.2.
This is a 65% discount compared to Nvidia’s forward P/E of 29.6x. I would argue that the current discount rate is too steep given the tremendous growth in Micron’s current data center division. After all, Micron’s HBM3E sales are closely tied to Nvidia’s GB200 sales going forward, so it’s hard to be bearish on Micron’s prospects considering Nvidia will sell truckloads of AI chips. Probably.
That may be why Wall Street remains bullish on Micron stock. Of the 43 analysts surveyed by The Wall Street Journal, 29 gave it the highest possible buy rating. A further 10 are in the overweight (bullish) camp, while 3 recommend a hold. Only one analyst recommends Sell for the entire group.
Analysts have an average price target for Micron stock of $146.82, implying a potential upside of 61% over the next 12 to 18 months from the stock’s current price at press time. The street price target of $250 represents a potential upside of 174%.
So investors looking for some value in the burgeoning AI semiconductor space should consider adding Micron stock to their portfolios in the new year.
