Micron Technology, Inc. (NASDAQ:MU) has been on a tear this year. The stock has surged by 250% since March 30 and is now valued well above a trillion dollars. Micron’s stock has skyrocketed on the back of the artificial intelligence boom, with surging demand for DRAM, NAND, and high-bandwidth memory (HBM), which has driven an extraordinary improvement in earnings. The company is scheduled to report fiscal fourth-quarter results on September 30, which will answer a very obvious but important question: Can Micron’s earnings trajectory continue?
The leading memory chipmaker trades at about 7x forward GAAP earnings, well below the sector median of 29.51 times. Wall Street analysts expect its earnings per share to jump from $8.29 in fiscal 2025 to $73.25 in fiscal 2026 and a whopping $157.73 in fiscal 2027. That jump in expected earnings is what makes its forward price-to-earnings ratio look inexpensive. However, the cheapness comes from extraordinary future growth expectations.
READ ALSO: Jim Cramer Explains Why He Has a “Giant Position” in Micron (MU) for the Charitable Trust
Bull Case
The strongest case one can make for Micron is that AI may have fundamentally changed the memory industry. The company’s management said that demand for both DRAM and NAND is significantly higher than supply, and the tight industry dynamics are likely to persist beyond next year. Additionally, AI systems are requiring additional memory chips, which is now an additional structural source of demand apart from the traditional sources like computers and smartphones.
The HBM market, which is mostly an oligopoly between Micron, Samsung, and SK Hynix, offers another important growth opportunity. Micron has begun shipping HBM4 this year, and management said Micron has already shipped more than $1 billion of HBM4 revenue. The company expects AI systems to require even more memory. HBM production needs significantly more wafer capacity than conventional DRAM. This could keep supply constrained even as Micron expands production.
Micron’s Strategic Customer Agreements are further strengthening the earnings outlook. The company has signed 16 agreements including roughly 20% of DRAM volume and one-third of NAND volume over their terms, which could help with revenue stickiness. If demand remains strong and supply constrained, these agreements could provide greater visibility into future revenue and margins than Micron’s cyclical nature of demand has historically enjoyed.
DON’T MISS: SK Hynix Is Eyeing Intel’s (INTC) Ohio Site. Why Micron (MU) Should Pay Attention
Bear Case
The biggest risk to the thesis is that the markets have extrapolated extraordinary growth in revenue and widening of margins too far into the future. Micron’s gross margin reached roughly 85% in its latest quarter, compared with about 38% a year earlier. Those rich margins are a result of a mismatch in demand and supply. Even if AI demand remains strong, such a dramatic improvement creates a very high earnings base. A normalization in memory pricing could lead to a disproportionate impact on future profits.
The industry is also investing heavily to expand capacity. Micron says that it will ramp up capex significantly as it expands production, while its competitors Samsung and SK Hynix are also investing heavily to meet this AI-related demand. If supply eventually catches up with demand, memory prices and margins could plummet. That would make today’s cheap valuation less meaningful if current earnings prove to be close to a peak in the current cycle.
Conclusion
Micron’s valuation sure does look attractive relative to the broader sector. However, that is dependent on the AI-driven memory demand allowing its earnings to remain elevated. The stock’s cheap valuation also reflects exceptionally high earnings expectations. The Fiscal Q4 results on September 30th could provide some answers regarding whether Micron’s current profitability represents a structural shift or another peak in the memory cycle.
Market Sentiment
Micron Technology, Inc. was held by 184 hedge funds in the Insider Monkey database at the end of Q2 2026, with a total investment value of about $34.9 billion. That is higher than 154 hedge funds in Q1, when they cumulatively held $14.3 billion.
READ NEXT: Sandisk (SNDK) Has Signed Away Two Thirds of Next Year’s Output. Can the AI Storage Boom Keep Paying? OR On Holding (ONON) Approves a $1 Billion Buyback Alongside its 2029 Targets
This article is originally published at Insider Monkey.
