Micron Technology‘s (MU -2.64%) stock price has cooled off this summer after rising over 1,000% in the last three years. Comments from the artificial intelligence (AI) market may indicate it is set to go even higher.
Projections of spending growth from the likes of Amazon, Alphabet, and now Space Exploration Technologies are not slowing down, meaning demand for AI chips is likely to rise through next year. Micron’s memory chips are a key input with growing importance for AI applications.
This earnings growth could mean a soaring Micron stock price. In fact, I predict that at some point in calendar year 2027, it could be above $2,000. But does that mean you should buy the stock today?
Image source: Getty Images.
Growth is slated to continue
Last quarter, Micron’s revenue grew 346% year over year to $41.5 billion. This makes it one of the fastest-growing businesses in the world. Most of this growth is due to price hikes on memory chips sold to customers like Amazon, which is why its operating margin has ballooned to 80%. That means operating income was $33 billion last quarter alone.
Today’s Change
(-2.64%) $-25.29
Current Price
$933.44
Key Data Points
Market Cap
Day’s Range
$922.39 – $969.44
52wk Range
$114.25 – $1255.00
Volume
27.5M
Avg Vol
45M
Gross Margin
72.60%
Dividend Yield
0.06%
Micron has its customers captive, with no alternatives except the South Korean memory chip providers, which are also facing shortages at the moment. This means — if these AI infrastructure players want to keep up in the AI race — they will need to pay whatever price is necessary to buy AI chips.
New players have entered the race, such as SpaceX, which is slated to spend hundreds of billions in the next few years on data centers. Combine all the players, and Nvidia thinks it can grow its already monstrous revenue by 70% in the next fiscal year. How does this relate to Micron? Well, Micron’s memory chips are an input to Nvidia’s AI systems, so when Nvidia’s revenue grows, Micron’s revenue is likely to follow.
The math behind the price target
For the next few quarters, and likely through the end of 2027, massive shortages of memory chips will remain in effect. This should prompt Micron to continue raising prices even as it increases capacity, resulting in further revenue growth. Next quarter, it expects revenue to grow to $50 billion. In 2027, with continued price increases, annual revenue could reach $250 billion.
That would be $200 billion in operating earnings, using Micron’s current operating margin of 80%. I believe investors will want to value Micron at least 11 times its earnings power, implying a market cap of $2 trillion or more. The stock currently trades at $948 per share and has a market cap of $1.07 trillion.
Therefore, I think that Micron’s stock price could surpass $2,000 at some point in 2027, more than double its current level.
MU data by YCharts
This doesn’t mean you should buy Micron stock today
Even if Micron’s stock returns to its upward trajectory in 2027, this does not mean you should just pile into shares today, especially if you are focused on buying and holding stocks for the long term.
Why? Memory chip stocks go through wild demand cycles. Right now, Micron is in the driver’s seat, with supply of AI chips well below demand. This is going to eventually turn, as it has many times in history, wiping out most of Micron’s profits, if not sending it into the red.
This makes the stock difficult to value for someone looking to hold for 10 years. Operating income may hit $200 billion in 2027, but if earnings fail to get close to this level every year for the next 10 years, is the stock truly worth $2 trillion? That is a difficult question to answer, and it may be holding investors back from piling in right now.
