Wall Street rarely likes to talk about mistakes, but Goldman Sachs admitted it underestimated the strength of the memory chip market when it downgraded Micron shares in May.
The firm reversed course and raised its rating for chipmaker's shares on Tuesday to buy from neutral, predicting the company will generate earnings above Street expectations in fiscal 2018.
Micron's stock is up 56.4 percent year to date through Tuesday compared with the S&P 500's 11.5 percent gain.
"While we believe it could be the mid- to later stages of the memory upturn and note memory fundamentals can change quickly, our industry discussions suggest 4QCY17 DRAM [dynamic random-access memory] pricing could rise (with NAND [flash memory] flat to up) and the DRAM cycle could remain tight in 2018," analyst Mark Delaney wrote in a note to clients.
Delaney raised his price target for Micron shares to $40 from $33, representing 17 percent upside from Tuesday's close.
Previously, he reduced his rating for stock to neutral from buy on May 7. The chipmaker's stock was up 22 percent after that downgrade through Tuesday.
"DRAM companies have been more disciplined with capex than we expected," he wrote. "Pricing is also higher than we expected."
The analyst cited how the price of a 32 gigabyte PC server memory module now costs $285 versus $240 in the second-quarter and $120 in the summer of 2016.
"Further, we believe mobile DRAM pricing could be up 10% in 2H17 as DRAM companies shifted capacity into servers (mobile DRAM pricing has been relatively stable this cycle so far)," he wrote.
As a result, Delaney raised his Micron fiscal 2018 earnings per share estimate to $7.60 from $5.15 versus the Street consensus of $6.24.
— CNBC's Michael Bloom contributed to this story.