Micron Technology shares jumped early Friday as Wall Street became more confident that the memory chipmaker still has room to grow.
The stock rose 2.8% in premarket trading, building on a strong monthly gain, but it is still below its late-June high.
Investors showed renewed interest in memory stocks this week after Sandisk shared a positive long-term outlook, boosting optimism for the whole sector. Shares of South Korean competitor SK Hynix also climbed in premarket trading.
The main reason for this renewed excitement is the belief that memory prices will keep rising quickly. KeyBanc expects DRAM prices to go up 15% to 20% in the third quarter compared to the previous quarter, with another 15% increase in the fourth quarter. NAND flash memory prices are also expected to rise 30% to 40% in the third quarter and another 15% in the fourth.
Micron is currently trading at a forward price-to-earnings ratio of 6.3, according to FactSet. This is still much lower than other chip companies, but valuing the stock is tricky because cyclical earnings can make traditional metrics less reliable. UBS set an optimistic price target for Micron this week, using an 11-times multiple on its 2029 earnings forecast. UBS explained that focusing on long-term earnings gives a better picture of Micron’s performance under long-term supply deals, since their model assumes a moderate downturn in memory prices will have happened by then.
