Micron (MU) stock traded around $966 on August 14, according to Yahoo Finance, extending a sharp snapback that pushed its shares back to the psychologically important $1,000 level.
Investors are weighing a couple of different signals.
For perspective, Micron stock has more than tripled this year, up nearly 240% year-to-date, blowing past the S&P 500’s 14% gain, according to Seeking Alpha.
However, the stock is still over 20% below its late-June peak, while fast-growing upstarts like China’s YMTC have now overtaken Micron in global NAND shipment share, according to CNBC.
At the same time, the underlying memory market remains remarkably tight, with Yahoo Finance reporting that much of Micron’s 2027 capacity has already been allocated as AI demand surges past supply.
That raises the question surrounding Micron: Is this still another memory cycle destined to reverse?
In a fresh note, New Street’s Pierre Ferragu increasingly thinks investors are asking the wrong question while slapping an eye-popping price target on Micron stock, as reported by Investing.
Heather Ainsworth/Bloomberg via Getty Images
Ferragu says stop valuing Micron like old Micron
5-star analyst Pierre Ferragu upgraded Micron stock to Buy from Neutral, aggressively raising its price target to $1,250.
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Compared to Thursday’s closing price at $949.83, the new target implies a superb 32% upside.
For decades, the memory space essentially followed a boom-and-bust cycle. Demand would rise, leading to a pricing explosion, and when memory giants expanded production, oversupply could send prices tanking.
Investors knew peak earnings might disappear quickly; they avoided putting high multiples on them. Ferragu feels that the framework is breaking down due to AI.
AI has effectively changed both the quantity and quality of memory demand.
HBM isn’t simply more DRAM; that’s part of another PC cycle. It is an indispensable part of expensive AI accelerators, including the likes of Nvidia, Google, Amazon, Meta, and other giants that require enormous amounts of extremely high-performance memory.
According to New Street, AI would eventually form nearly two-thirds of memory demand. Even beyond 2030, the firm models memory demand growing at an impressive 15% annually, compared with roughly 10% historically.
Why HBM changes the economics
Ferragu argues that unlike DRAM, which is volatile, HBM deserves a valuation premium as it’s structurally less cyclical.
HBM tends to be technologically more complicated, consumes a lot more wafer capacity compared to conventional DRAM, and involves advanced packaging.
According to Tom’s Hardware, HBM uses nearly 3-times the wafer capacity per gigabyte compared to typical DDR5 DRAM, primarily because it requires larger dies and several vertically stacked DRAM layers, among other things.
Interestingly, that means that adding new HBM supply isn’t like turning on another commodity production line. AI effectively raises HBM demand, while HBM production limits the industry’s ability to flood other memory markets with supply.
That is one of the big reasons why the current shortage could last far longer than previous cycles.
Ferragu sees a radically different downside case for Micron
Perhaps the most striking part of Ferragu’s thesis is how much cash Micron could retain even when conditions weaken.
New Street estimates that Micron could potentially hold over $600 billion in cash by 2030, producing more than $150 billion in annual free cash flow.
At Micron’s current market capitalization of nearly $1.1 trillion, that level of free cash flow points to a massive 14% yield, even before investors assign any value to the enormous cash balance on its books.
For perspective, as of its latest quarter, Micron boasted a $30.2 billion cash balance.
As we look ahead, Ferragu believes Micron might eventually command a $2 trillion to $3 trillion market capitalization by 2030, which means it’s underestimating the company’s long-term earnings power by a big margin.
According to Wall Street consensus estimates compiled by Seeking Alpha, the downturn is expected to begin in 2028, when EPS could fall as low as $100, after reaching a massive $154.89 in 2027.
Moreover, unlike past memory busts, Ferragu believes that Micron is likely to remain highly cash generative even through a four-year downturn.
So that means that the amplitude of the memory cycle is effectively shrinking.
Micron still looks cheap, but investors are betting the boom lasts
Micron stock’s pullback has made it mighty attractive, at least based on earnings metrics.
According to Seeking Alpha data, Micron trades at around 13 times forward non-GAAP earnings, which is 47% below the sector median. On a GAAP basis, the divide is even striking, with Micron trading at a 57% discount.
That makes the stock hard to dismiss as overvalued, particularly when the tech giant generated an 84.9% adjusted quarterly gross margin and $18.3 billion of quarterly free cash flow, while guiding fiscal Q4 sales to be at $50 billion with an adjusted EPS to roughly $31.
For existing shareholders, the fundamentals are impressive, and the pullback has made the stock a lot more attractive, even with the risks involved.
Those looking to be circumspect might want to build positions gradually on weakness.
As we look ahead, investors will want to monitor gross margins, HBM pricing, capacity additions, and EPS revisions over the next couple of years. If earnings remain structurally elevated, today’s PE ratio will look remarkably attractive.
Related: Jim Cramer says Nvidia now signals something much bigger
