Shares of Micron Technology (MU -1.57%) have gotten off to a hot start in 2025, gaining an impressive 30% as of this writing and outpacing the 8% gains clocked by the PHLX Semiconductor Sector index. And analysts expect the memory specialist to deliver more upside in the coming year.

Micron carries a 12-month median price target of $145, according to 42 analysts covering the stock. That's potential upside of 32% from recent levels. And 83% of the analysts covering the stock recommend buying it.

Let's look at the reasons it is indeed capable of delivering the gains that the market expects.

AI-driven memory demand will be a big growth driver for Micron

The company ended 2024 on a sour note. The stock plunged last month following the release of its fiscal 2025 first-quarter results (for the period ended Nov. 28, 2024) when its guidance for the current quarter fell woefully short of expectations.

Management called for $7.7 billion to $8.1 billion in revenue for the second quarter of fiscal 2025, missing the consensus estimate of $8.97 billion by a big margin. The earnings per share guidance range of $1.33 to $1.53 was also lower than the Wall Street estimate of $1.77.

The company's poor guidance was a result of the slower-than-expected recovery in the smartphone and personal computer (PC) markets, which led to tepid demand for memory products from these segments.

In the December earnings call, CEO Sanjay Mehrotra said:

We had previously shared our expectation that customer inventory reductions in the consumer-oriented segments and seasonality would impact fiscal Q2 bit shipments. We are now seeing a more pronounced impact of customer inventory reductions. As a result, our fiscal Q2 bit shipment outlook is weaker than we previously expected.

But Micron doesn't believe this weakness will last long. Mehrotra said the company expects "this adjustment period to be relatively brief and anticipate customer inventories reaching healthier levels by spring, enabling stronger bit shipments in the second half of fiscal and calendar 2025."

For instance, the company sees PC shipments growing in the mid-single digits this year following a flat performance in 2024. It adds that the PC market's growth will be weighted toward the second half of the year. More importantly, the company is likely to witness stronger growth in PC memory volume this year thanks to the advent of AI-enabled PCs.

The company says that entry-level artificial intelligence (AI) PCs will be equipped with at least 16 gigabytes (GB) of dynamic random access memory (DRAM), while more advanced AI PCs are expected to carry more than 24 GB of DRAM. That would be a big improvement over last year, when the average DRAM content in each PC stood at 12GB. Gartner expects AI PC shipments to jump 165% in 2025 to 114 million units following last year's estimated jump of 100%.

So, Micron's PC business should improve significantly once shipments start picking up in the second half of the year. And the data center business continues to remain the bright spot as revenue from this segment increased 400% year over year in the fiscal first quarter.

The company's high-bandwidth memory (HBM) chips have been selected by Nvidia for its Blackwell AI graphics processing units (GPUs), and the semiconductor company will also deploy Micron's HBM in its consumer-grade graphics cards. The company has also been winning more customers for its HBM chips.

It has started volume shipments of HBM to a second customer and says that shipments to a third customer will begin in the first quarter of calendar 2025. As a result, there is a solid chance that Micron will be able to corner a bigger share of the booming HBM market that's expected to generate $30 billion in revenue in 2025 as compared to $16 billion last year. The company expects the overall HBM market to generate annual revenue of $100 billion in 2030, suggesting that it has a lot of room for growth in this niche.

An attractive valuation and rapid growth make the stock a solid buy

The discussion so far indicates that investors would do well to look at the bigger picture and move past the chipmaker's guidance miss. After all, revenue in the first quarter of fiscal 2025 increased an impressive 84% from the year-ago quarter to $8.7 billion. Micron also posted an adjusted profit of $1.79 per share as compared to a loss of $0.95 per share in the same quarter last year.

Although the $7.9 billion revenue guidance for the current quarter was much lower than analysts' expectations, it indicates a robust jump of 36% from the year-ago period. The bottom line will also jump to $1.43 per share from the prior-year period's $0.42 per share. And investors can buy this fast-growing AI stock at an attractive valuation even after its recent run-up.

Micron is trading at 30 times trailing earnings, while the forward earnings multiple of 14 is also quite attractive. Given that analysts expect earnings to jump 584% in the current fiscal year followed by a 44% increase in the next one, investors still have an opportunity to buy the stock, especially considering that it seems capable of delivering more upside.