DA Davidson Sets $3,000 Micron Target as CNBC Investing Club Questions Pace of Rally

Luria's target is based on 19 times his earnings estimates for Micron's fiscal 2027, which ends in August 2027. The stock currently trades at 6 times those estimates. His previous $2,100 target was based on a price-to-earnings multiple of 13. Micron shares rose almost 4% in Wednesday's session, bucking a more than 1% decline in the iShares Semiconductor ETF, CNBC reported.

Luria told Investing Club reporter Natasha Abellard Wednesday morning: 'I'm fully aware of how unusual it is to have a price target that's three times the level of a stock, especially when it's a trillion-dollar stock already. But I am doing so because I believe that, as investors think of Micron as a trillion-dollar company, they're going to realize that it is a much better story than they thought it was.'

CNBC's Investing Club said it agrees directionally that the current multiple is too low, but specifically it does not endorse a nearly 200% move by this time next year. Such a move would be predicated on the market changing its mind about what it is willing to pay for Micron's future earnings, the Club said, a different call from predicting that Micron will earn dramatically more than the current Wall Street consensus. The past year's rally has been driven by earnings growth, not multiple expansion; a year ago the stock had an 11 multiple. The Club said it finds it hard to believe investors will be comfortable paying a market multiple within the next year.

Historically, chip stocks like Micron have been treated like commodities and traded at mid-single-digit valuation multiples on peak earnings because they are cyclical. The AI buildout has led to the current memory boom. Over a longer period that includes booms and busts, Micron's average P/E is much higher than the present single-digit multiple and more in line with the market multiple, but CNBC's Investing Club calls that misleading. When memory supply catches up with demand, it said, producers' pricing power collapses and earnings crater faster than stock prices, resulting in a higher P/E. When investors sense another demand-driven upcycle, they bid memory stocks up ahead of earnings growth, also raising the multiple. Because of how bad the cycle can get, investors have been conditioned to reward the boom with a lower multiple to bake in safety for the bust.

The current debate is whether agentic AI's seemingly insatiable demand for high-bandwidth memory has ended the boom-and-bust nature of the industry or at least elongated the cycle from its usual three to four years. Micron management has pushed that view, most materially through long-term supply commitments, or SCAs. Most of these multiyear agreements lock in selling-price bands with floor and ceiling prices, while some rely on periodic price negotiations based on market pricing. On the company's Sept. 30 earnings call, CFO Mark Murphy said: 'Even at floor prices, we expect margins meaningfully above any prior cycle peak margins.' The agreements do not cover all future revenues. Executives have said their goal is to have about 50% of revenue through the 2030 timeframe covered by SCAs, a level Luria argues is the 'right balance.'