Most of the market’s attention has floated to the technology sector today, focused on the companies most exposed to developments around artificial intelligence and its expanding adoption in the global economy. As more and more services and platforms adopt artificial intelligence, the situation becomes more of a shovels and gold rush situation. Investors can start to look at Micron Technology Inc. (NASDAQ: MU) shovels after its recent 16.5% sell-off from its all-time high.
Two primary metrics typically drive stock prices, one of them being the future perception of earnings growth and the second being recent momentum. Here’s where things get tricky for investors, as shares of NVIDIA Co. (NASDAQ: NVDA) count with all the momentum, delivering a 158% year-to-date rally. Yet, Wall Street analysts are not keeping up their end of the bargain with earnings per share (EPS) projections for the year.
On the other hand, Micron stock’s recent sell-off will remove momentum from the list. Still, Wall Street analyst forecasts are there to make up the shortfall, as current EPS growth projections for the year are astronomically higher than any other stock in the semiconductor industry. The tiebreaker, however, can be found in recent analyst ratings and institutional buying activity.
Growth Projections Favor Micron Stock Over NVIDIA's Forecast
Wall Street analysts are pushing NVIDIA for a 25.3% EPS growth forecast. With other peers in the space, like Taiwan Semiconductor Manufacturing Co. (NYSE: TSM), expecting to see a similar 25.6% EPS growth rate, the path for NVIDIA to make a new all-time high is only reiterated by analysts at the UBS Group, as they boosted their price targets to $150 from $120.
NVIDIA stock would need to rally by as much as 17% from where it trades today to prove these new targets right. One analyst, Pierre Ferragu from New Street, dared to go against NVIDIA stock by downgrading it to 'Neutral' from 'Buy,' but it looks like there was no ground to his view.
Taking another direction, Micron analysts now expect to see up to 1,408% EPS growth in the next 12 months, massively above any other peer's projections for future growth. But does anyone in the market – or Wall Street – think these massive projections are realistic?
Those at J.P. Morgan Chase do, as they recently boosted their price targets from $130 a share to $180 a share as of June 2024. This boost means a rise of 38.5% in the semiconductor maker's perceived valuation. To reach this new valuation level, the stock would need to rally 36.5% from where it sits today.
Not only is Micron's EPS potential growth much larger, but also its perceived upside. Investors can gauge whether markets are okay with Micron stock's current EPS growth and valuations through the forward P/E ratio.
Stocks that propose a better EPS growth rate over peers should trade at a premium forward P/E valuation. For good reason, but that has yet to happen for Micron.
Micron Stock vs. Peers: Geopolitical Fears Drive Valuation Divergence
The semiconductor industry trades at an average forward P/E ratio of 24.0x today, throwing Micron stock into a 37% discount through its current valuation of 15.0x forward P/E. Knowing that Micron is leading the sector in EPS growth, why is the market not paying a respective premium for these future earnings?
The answer is exposure to China, which has been placing bans and embargoes on semiconductor technology. Among these bans, Micron Technology's chips have found themselves in the middle of the storm, driving some investors away from a willingness to pay an appropriate premium for EPS projected growth ahead.
Other Wall Street participants recognized the potential in Micron Technology stock. Price T Rowe Associates boosted its stake in Micron stock by 22.2% as of May 2024. This new addition brought the asset manager's net investment up to $2.2 billion today.
Despite the company's China issues, management feels confident about what's in store shortly. In the company's latest quarterly earnings report, investors can note management quoting expectations for record revenue 2025.
Taken at face value, Micron Technology stock's dip could be one to watch for investors looking to get exposure to the biggest semiconductor growth story. And even though NVIDIA has the better sentiment in the market, that stock trades at 91% of its 52-week high, whereas Micron sold down to only 84% of its 52-week high.
