Wall Street analyst predicts bizarre 200% increase for Micron

Micron is already working on an unprecedented stock market rally this year, but according to an analyst from DA Davidson, the share can rise even further. Gil Luria has raised its price target for the American chipmaker to $3,000. That would mean an increase of almost 200 percent from Tuesday's closing price.

The forecast stands out because Micron has already risen explosively in recent months. Since April last year, the profit has been around 1,500 percent. This year alone, the share is already about 266 percent higher. Still, Luria thinks investors are still underestimating the consequences of the global AI race.

Together with Samsung and SK Hynix, Micron is one of the three major manufacturers of memory chips. About three-quarters of the US company's revenue comes from DRAM memory. NAND flash memory accounts for about a quarter.

Luria expects the current memory market cycle to be different from previous periods of strong demand. According to him, there is a structural change due to the huge investments in artificial intelligence.

Memory plays an important role in the performance of AI systems. High-bandwidth memory, or HBM for short, is especially important. This fast form of memory is used together with powerful AI chips to process large amounts of data as quickly as possible.

At the same time, manufacturers cannot simply increase their production. New factories and so-called cleanrooms take a lot of time to build. The availability of advanced machines for chip production is also a limitation.

HBM also places extra pressure on the existing production capacity. According to the source, about three times as much wafer capacity is needed for its production as for traditional DRAM memory. This also causes a shortage of other types of memory.

Luria therefore expects the deficit to last longer than many investors currently think. According to him, long-term supply contracts between memory producers and large technology companies reinforce that image.

Nevertheless, there are also reasons to be cautious with the spectacular price target. Micron is not the biggest player in the important HBM market.

The company held about 24 percent of the global DRAM market in the second quarter. At HBM, the share was only 18 percent. Samsung came in at 33 percent and market leader SK Hynix at about 50 percent.

According to calculations from the source, less than ten percent of Micron's sales would come directly from HBM. The company therefore benefits mainly indirectly from the AI race.

Because Samsung, SK Hynix and Micron use a lot of production capacity for HBM, there is less room left for traditional DRAM and NAND. As a result, the prices of these memory chips have risen sharply. It is precisely this that Micron is currently benefiting from particularly hard.

This is reflected in the financial figures. Micron's revenue increased nearly fivefold in the past quarter to $55.2 billion. The gross margin increased from 44.7 percent a year earlier to 86.8 percent.

This growth was largely due to higher prices. The amount of DRAM chips sold only increased by a medium single-digit percentage compared to the previous quarter. At NAND, growth was around ten percent.

This is also the most important risk for investors in the story. To sustain current growth, Micron relies heavily on high prices for traditional DRAM and NAND memory.

As long as chip manufacturers reserve a lot of capacity for HBM and the demand for AI infrastructure remains high, this scarcity can play into the hands of Micron. It will be a different story if producers succeed in greatly expanding their capacity or if demand weakens.

Luria's price target assumes that the current memory boom will last much longer than previous cycles and that investors are willing to pay a higher valuation for Micron. At around $1,036, the stock would have to nearly triple to reach its $3,000 target.