Investors looking ahead to when the high-bandwidth memory (HBM) shortage will end can start looking a little further ahead. Micron’s NASDAQ: MU the response to SK Hynix’s entry into the US boldly reveals that the shortage of HBM continues and may continue for the next ten years (as indicated by the CEO of SK Hynix), and that both companies are struggling to produce.
While SK Hynix will use its IPO funds to strengthen US power, Micron is using its strong cash flow and financial position to do the same. The company raised its 10-year investment outlook to $250 billion in the country, which will be used for US-based manufacturing capacity and HBM technology development.
The battle is for market share. SK Hynix commands a large share of the market due to its close relationship with NVIDIA NASDAQ: NVDAbut its dominance is not guaranteed. Micron, on the other hand, is working to align closely with NVIDIA’s standards to expose a large portion of the business to this single client.
Meanwhile, Micron holds a large share of the second-tier AI infrastructure market, including Amazon NASDAQ: AMZNwhich uses HBM in its Trainium chips, Alphabet NASDAQ: GOOGLwhich we use for its Tensor processing units, and Microsoft NASDAQ: MSFTwhich uses HBM with its Maia architecture. Looking ahead, Micron is expected to benefit from the dual trends of strong demand, fixed cost ratios, and pricing power for many years.
The latest news in DRAM and HBM sales is that prices are being raised or removed from long-term contracts, opening the door to greater pricing power. Although Micron has yet to follow suit, a similar move is likely. Until then, Micron is sitting comfortably, providing a high-demand product with a steady multi-year sales boom and improved pricing power.
Analysts Take Note, Micron Is Sending Too Strong a Signal
Analysts responded favorably to the $250 billion spending plan, with discussion highlighting the increased investment as a strong signal, confirming the need for AI and increased memory expansion. Long-term income visibility translates not only to growth stability, but also to cash flow and capital return potential.
As it stands, Micron’s dividend is token but very reliable, and the return plan is poised for strong future increases. Among the factors driving share prices is the ability of buybacks to begin reducing the number of shares in the not-too-distant future.
Until then, MarketBeat tracks 38 analysts who rate Micron stock as a Buy consensus, with a bias of 92% Buy. Trends include stable coverage, strengthening sentiment, and an increase in the firm target, in line with forecasts for a nearly 30% rise since mid-July and a high end pointed at $2,000. The $2,000 target is important, as it represents a more than 100% upside from mid-July trading levels and may be reached within a matter of minutes.
Institutional activity suggests downside risks are limited to Q3. The group owns more than 80% of the stock and has bought the balance in 12 consecutive months, accelerating the purchase in early Q3. The initial Q3 balance is greater than $2-to-$1, providing a strong base of support, and may remain strong, given trends, outlook, and spending plans. The risk from this vector is that the group is selling in a rally as the price rises, but there is little sign of that now. With analysts raising targets and strengthening sentiment, institutional support is likely to remain strong for the foreseeable future.
Micron’s Triple-Digit Upside: Near, Medium, and Long Term
Micron’s valuation metrics suggest strong upside potential in the near, medium, and long term. The stock trades at roughly 12x current-year earnings guidance, a multiple below that of AI’s key peers and the S&P 500, which trade at least 100% higher relative to their earnings. Looking ahead, the valuation drops to about 6x as soon as next year, suggesting another 100% increase is possible within the next two to three quarters. Longer term, ratings fail to address HBM’s increased deficit, setting the stage for a persistent, tight cycle of analyst reviews that could last several years.
Micron’s price reversal in early July is an opportunity in this situation. While a 25% price correction is scary, it’s a small move for this market, which is up nearly 700% over a 12-month period. The most important chart details are the previous high and its MACD confluence, a market strength signal that suggests a new high will be set. The only question is the time to travel, and it may start soon. Micron is scheduled to report its Q4 financial results in late September, but releases from NVIDIA, Mag Seven, and the most important hyperscale AI providers could also do the trick by confirming demand and spending trends are strong.
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