Why Stifel analysts say Micron's stock could reach "higher highs"

Investing.com -- Micron's returns may be boosted as the supply of its key memory chips tightens and demand for these processors recovers from a recent downturn, according to analysts at Stifel.

In a note upgrading their rating of Micron (NASDAQ:MU) to "Buy" from "Hold," the Stifel analysts argued that this trend could bolster an uptick in prices charged by the flash storage manufacturer, driving up profits. Historically, they noted, sales of Micron's dynamic random access memory, or DRAM, semiconductors account for more 80% of the company's bottom-line figure.

Prices for memory chips, which dipped in 2023, are expected to improve this year and continue to increase in 2025, Micron Chief Executive Sanjay Mehrotra said in December.

Micron has been the beneficiary of a push by many businesses to incorporate artificial intelligence (AI) applications into their offerings, which has supported demand for its high-end memory chips that help train the models at the heart of the nascent technology.

"[B]uoyed by early cyclical [...] appeal, we see the stock breaking out to higher highs, perhaps aided by the most compelling growth-to-valuation ratio amongst larger cap 'AI' relevant stocks," the Stifel analysts said.

Meanwhile, Mehrotra said the supply of chips for PCs and other devices will also ease back down to normal levels in the first six months of 2024. This tighter supply and demand balance is anticipated to support prices and fuel profits this year, he said.