Micron stock is soaring due to recovery in semiconductor market and AI boom, overvalued

From Morningstar: 2024-06-20 07:01:00

Micron Technology’s stock has hit record highs due to the recovery of the semiconductor memory market and the AI boom. The stock has increased by 65.6% since the beginning of 2024, reaching $147 per share. Morningstar analyst William Kerwin warns that the stock is overvalued at this price, with a fair value estimate of $80 per share.

Micron is the world’s fifth-largest chipmaker, specializing in DRAM and NAND memory chips. These chips are crucial for various sectors, with 71% of Micron’s revenue coming from DRAM and 27% from NAND chips. While AI growth is driving sales, Micron’s business is cyclical, with profits vulnerable to fluctuations in chip pricing.

Micron’s profitability depends on cyclical trends in chip demand and supply. In 2023, Micron’s sales were impacted by a sharp downturn, and the company is vulnerable to fluctuations in memory chip pricing. Analysts forecast significant profit growth in the next five years, driven by AI growth, but caution investors about the company’s cyclical nature.

Morningstar rates Micron as 1 star, significantly overvalued at its current price. The fair value estimate for Micron stock is $80 per share, implying a high level of uncertainty due to the company’s cyclical business model. Despite potential growth opportunities, investors are advised to consider Micron’s long-term cyclicality and market risks.



Read more at Morningstar: Micron Stock is Soaring. So is it a Buy or a Sell?