Shares of Micron Technology(NASDAQ: MU) have been on fire in the past month, jumping an incredible 43% as of this writing thanks to the broader recovery in tech stocks amid signs that the tariff-fueled global trade war could be cooling down.
It is worth noting that Micron stock dropped substantially in the first three months of the year before its recent rally began in the first week of April. The stock's poor performance earlier in the year can be attributed to a potential drop in artificial intelligence (AI) hardware spending following the release of DeepSeek's cost-effective reasoning model, along with the negative stock market sentiment caused by the tariff turmoil.
There were reports that Micron was looking to impose a surcharge on some of its memory products to account for the increase in manufacturing costs caused by tariffs. However, the recent talks between the U.S. and China presumably came as a relief for Micron, as both countries have decided to substantially reduce tariffs. Moreover, the Trump administration announced last month that it is pausing reciprocal tariffs for 90 days in order to negotiate trade deals with other countries.
These developments have lifted technology stocks in recent weeks, as evident from the 23% surge in the Nasdaq-100 Technology Sector index in the past month. Micron has benefited from this rebound, and the good part is that its rally seems sustainable.
Let's look at the reasons this tech stock could deliver more upside.
Image source: Getty Images.
AI-fueled memory demand is a big catalyst for Micron
Micron's results have been stellar in recent quarters on the back of tremendous demand for its high-bandwidth memory (HBM) chips, which are used in AI servers. Its revenue in the first six months of fiscal 2025 (which ended on Feb. 27) shot up by an incredible 58% to $16.8 billion. Even better, the improving demand-supply dynamics of the memory market have led to a sharp improvement in the company's margins.
As a result, Micron has swung to a profit in the first six months of the ongoing fiscal year from a loss in the same period last year. The good part is that the increase in memory prices is expected to continue, driven by AI-fueled demand. The average price of dynamic random access memory (DRAM), which accounts for three-fourths of Micron's top line, is expected to rise 3% to 8% in the second quarter of the year, per market research firm TrendForce.
The rapid adoption of HBM is going to play a central role in this growth. Bloomberg Intelligence estimates that the HBM market could generate annual revenue of $130 billion in 2033, up from just $4 billion in 2023. This isn't surprising, as AI graphics cards from the likes of Nvidia and Advanced Micro Devices pack huge amounts of HBM to enable high-speed data transmission of the large sets of data needed for AI model training and inference.
So robust HBM demand is going to remain a tailwind for Micron Technology in the long run. But at the same time, AI-enabled personal computers and smartphones are also packing in bigger memory sizes. Microsoft, for example, is recommending at least 16 gigabytes (GB) of DRAM in AI PCs, which is higher than the average DRAM of 12 GB in each PC last year.
Meanwhile, AI-capable smartphones are also expected to use 50% more DRAM, on average. Micron, therefore, is on track to benefit from AI-driven memory growth in multiple end markets. This explains why the company's earnings growth is expected to take off.
Sizzling earnings growth could send this tech stock soaring
Analysts are forecasting Micron's earnings will jump by more than 5x in the current fiscal year to $6.99 per share, followed by a 57% jump next year to $10.97 per share. The health of the memory market suggests that Micron could indeed deliver such eye-popping growth. Assuming that it can achieve $10.97 per share in earnings next fiscal year and that it will be trading at 27 times forward earnings at that time (in line with the tech-laden Nasdaq-100 index), its stock price will jump to $296.
That points toward a 3x jump from current levels. The stock is currently trading at just 9 times forward earnings. Additionally, its price/earnings-to-growth ratio (PEG ratio) of just 0.14, based on the five-year projected earnings growth it is expected to deliver, per Yahoo! Finance, suggests that it is undervalued with respect to the growth it is expected to deliver.
Investors are getting a good deal on Micron stock right now, considering the potential upside it could deliver.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
