"The New Nvidia": Why Wall Street Is Betting Big on Micron

Several major investment banks raised their price targets for Micron shares after the chipmaker reported impressive quarterly results. On Wednesday, June 24, Micron reported a fourfold increase in earnings for the past quarter, which significantly exceeded market expectations. One of the main drivers of optimism on Wall Street was the chipmaker’s disclosure of details regarding 16 long-term agreements with customers (SCAs), including data center operators and automakers, which guarantee purchases of the company’s products for a period of three to five years, according to CNBC.

Against this backdrop, there is talk in the market that Micron has effectively taken the title of the main beneficiary of the AI boom away from Nvidia, notes Barron’s—the publication refers to the chipmaker as the “new Nvidia.”

— Following the release of Micron’s quarterly results, JPMorgan reaffirmed its “Buy” rating on the company’s stock and raised its price target from $1,220 to $1,540. This target implies a 47% increase in the company’s stock price relative to the closing price on June 24.

"In our view, this qualitative step [significant revenue growth and disclosure of details regarding SCA] will fundamentally transform Micron’s business model from that of a cyclical commodity manufacturer to that of a long-term contract supplier with strong protection against declines in both revenue and margins,” said Harlan Sur, an analyst at the bank.

— Barclays: “Ahead of the report’s release, we believed the company needed to disclose details of the SCA agreements to reassure customers about the results. The details provided turned out to be better than we expected, both in terms of revenue commitments and the number of customers. <…> Overall, we view these deals as a significant positive factor in protecting against setbacks, and we continue to see upside potential for Micron’s stock, as the supply-demand imbalance [in the memory market] is nowhere near easing,” — wrote Barclays analyst Tom O’Malley.

His recommendation to buy the company's stock remains unchanged, though he raised his price target for Micron shares from $1,175 to $2,000 per share. This estimate implies an increase in Micron's share price of nearly 91% relative to the most recent closing price.

— Deutsche Bank: “Micron’s results exceeded high expectations from both a financial and strategic perspective. Financially, Micron posted yet another quarter of stunning results, with favorable pricing trends driving revenue... to extraordinary levels... More importantly, from a strategic standpoint, Micron has taken a significant step toward reassuring investors that its business model has fundamentally changed in the age of artificial intelligence,” says the bank’s analyst Melissa Weathers. The company’s report reinforced experts’ views that the fundamental dynamics underpinning the memory industry have undergone a structural shift—memory is transforming from a commodity component into a strategic asset, Weathers added.

Her recommendation for Micron stock is "buy," and the price target has been raised from $1,500 to $1,550. The analyst's estimate implies a 48% increase in the company's stock price relative to the most recent closing price.

— UBS: “In fact, [regarding long-term agreements] Micron disclosed even more information than we expected,” noted analyst Timothy Arcuri. The chipmaker, he added, “is seeking to attract even more customers” under these contracts so that they account for more than 50% of total revenue. At the same time, according to the bank’s estimates, the minimum prices for Micron’s products are set at a fairly low level, — so low that for them to be reduced even further (and for Micron’s customers to consider terminating their contracts), there would need to be sufficient supply in the memory market. However, according to a UBS analyst, this may not happen until 2029 at the earliest, and most likely not until 2030.

Arkur confirmed his buy recommendation for Micron shares and set a price target of $1,625. This implies upside potential of 55% compared to the stock's closing price on Wednesday.

— Overall, the average consensus forecast among analysts for Micron shares is rising rapidly: while it stood at just $685.8 at the end of May and was at $942 just 10 days ago, it has now climbed to $1,213. This figure implies a 15.7% increase from the last closing price, though it is still below the chipmaker’s intraday high on June 25—at Thursday’s peak, Micron shares jumped 19% to $1,255. At the time of publication, they are up just over 15%—trading at around $1,210.

Micron’s latest financial results were just as staggering as those of Nvidia’s most impressive quarters. Quadrupling revenue with a gross margin of 85% is a rare feat, Barron’s notes. At the same time, Micron emphasizes that this is not a one-time spike, as the memory chip shortage is expected to last for at least another 18 months.

Moreover, while analysts used to talk about the “Nvidia tax”—the forced expenses Big Tech companies incur to purchase scarce AI hardware—it has now been replaced by the “Micron tax” for the largest tech companies — or, at the very least, a “memory levy,” since the company’s South Korean competitors are reaping comparable benefits, the publication writes.

This article was AI-translated and verified by a human editor