Why Micron Could Rally All The Way Through Q4

Key Points

• Micron shares have been rallying hard in recent weeks, signaling renewed momentum.
• Even with these gains, analysts are still calling for additional upside. 
• The stock's technical setup is also attractive and supports the bull's thesis. 

After a near-perfect 2023 in terms of gains, this year has been a return to reality for shares of semiconductor tech giant Micron Technology Inc NASDAQ: MU. After soaring 220% from the start of 2023 through this past June, its shares took a dive into September, falling 45%. However, in the past couple of weeks, Micron has bounced back with a 30% rally, and there are reasons to think we could be in for even more gains as we head into the final months of the year.

The Idaho headquartered company, with a market cap of $121 billion, is a key player in the memory and storage market, providing essential components for everything from smartphones to data centers. With AI and tech growth driving demand, Micron's products are more important than ever. Notwithstanding the volatility seen in the stock this year so far, investors should be excited. Let's jump in and take a closer look. 

Bullish Fundamentals

For starters, there's the company's strong fundamental performance. Just a few weeks ago, Micron delivered a blowout fiscal Q4 report, beating expectations with its highest-ever revenue, which was up more than 90% year-on-year. AI demand was seen as a significant driver here, and the company's strong guidance for the next quarter ticked all the right kinds of boxes on Wall Street. 

As CEO Sanjay Mehrotra summed up with the report; "we are entering fiscal 2025 with the best competitive positioning in Micron's history. We forecast record revenue in fiscal Q1 and a substantial revenue record with significantly improved profitability in fiscal 2025."

Tempting Price Targets

In the weeks since the report, there's been no shortage of analysts who've come out with bullish stances on Micron stock. Both KeyCorp and Cantor Fitzgerald have reiterated their "Overweight" ratings on Micron shares in the past 2 weeks alone, with Cantor Fitzgerald's $150 price target implying nearly 40% upside from Wednesday's close at $110. These are the latest in a string of positive calls, building on similar updates from the teams over at Robert Baird, Rosenblatt Securities, and Raymond James in the last week of September. 

A bullish broader market is also playing a supportive role. The benchmark S&P 500 index for example is hitting fresh all-time highs, and with interest rates starting to fall there's a strong risk-on sentiment in place right now. Tech stocks, especially growth names like Micron, tend to thrive in such an environment. For those of us on the sidelines, this is the ideal kind of macro backdrop to have when considering getting involved. 

Heading into the final few weeks of the year, investors should look for the stock to continue building on this momentum. Its technical setup is also encouraging, as seen through its Relative Strength Index (RSI). The RSI is a momentum indicator and measures the speed and change of price movements, with readings above 70 signaling extremely overbought conditions. With Micron's at just 62, though, even with weeks of gains, it's indicating the stock has a ton of room to run before anyone could call it overbought. 

Concerns Worth Noting

There are some risks worth noting. Micron's price-to-earnings (P/E) ratio, for example, sits at 156, significantly higher than competitor NVIDIA Corp's NASDAQ: NVDA 63. A high P/E can indicate that a stock is expensive, and in Micron's case, it suggests investors expect rapid growth. This puts pressure on the company to keep delivering strong results in the coming quarters. 

Geopolitical tensions, particularly around U.S.-China relations, are another concern for the semiconductor industry. Micron experienced a sell-off earlier this year over fears of export restrictions to China. While this remains a risk, the company's optimistic guidance suggests it is navigating these challenges effectively. 

Getting Involved

All-in-all, we're inclined to say that Micron is in a good position to continue gaining into the holiday season. Despite concerns around valuation and geopolitical risks, its growth prospects remain strong. The market's risk-on sentiment is favorable and investors are keen to stay on the right side of any stock that's well positioned to benefit from the AI revolution.