Key Points
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Micron stock has quadrupled in the past year as demand for AI infrastructure has led to an unprecedented supply shortage of memory chips.
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Memory chips are a cyclical commodities, meaning manufacturers compete primarily on price while the industry cycles between too little and too much supply.
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Wall Street says Micron’s earnings will increase quickly until peaking in fiscal 2027, at which point analysts expect earnings drop sharply through fiscal 2029.
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Artificial intelligence accelerators developed by companies like Nvidia and Broadcom require more memory than traditional processors. That has made memory chip manufacturer Micron Technology (NASDAQ: MU) one of the hottest stocks on the market.
Demand for memory chips has led to an unprecedented supply shortage, causing prices to skyrocket. Indeed, dynamic random access memory (DRAM) prices have nearly tripled over the past year, according to The Wall Street Journal. And Micron stock has advanced 350% to $423 per share over the same period.
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Here’s my prediction: Micron will trade around $554 per share after the company delivers its fourth-quarter financial report in late 2027. That implies 31% upside from its current share price.
Image source: The Motley Fool.
Micron reported exceptional financial results in the second quarter
Micron is a semiconductor company that develops memory and storage solutions for personal computers, mobile devices, data center servers, and automotive systems. It is the third-largest manufacturer of DRAM memory products, including the high-bandwidth memory (HBM) and NAND flash memory products behind South Korean companies Samsung Electronics and SK Hynix.
Micron reported exceptional financial results in the second quarter of fiscal 2026 (ended Feb. 26). Revenue increased 196% to $23.8 billion, driven by record sales in DRAM, HBM, and NAND memory products. Non-GAAP net income increased 682% to $12.20 per diluted share. But the stock declined following the report because investors are uncertain how long the good times will last.
The memory chip industry is defined by boom-and-bust cycles
Memory chips are commodities in that little differentiation exists between products from different suppliers. That means memory chip manufacturers compete primarily on price, which itself is determined by supply and demand.
Historically, the memory chip industry has oscillated between supply shortages that drive prices higher and supply gluts that drive prices lower. That happens because suppliers like Micron increase production capacity during inflection points that boost demand. That is an expensive and time-consuming endeavor, but supply eventually outpaces demand, which explains the cyclical nature of the industry.
The last inflection point was the COVID-19 pandemic. Demand for memory chips started to increase in mid-2020 as businesses shifted toward remote work, creating a need for more personal computing devices and data center capacity. Memory chip prices peaked in 2022 before falling significantly in 2023, at which point suppliers cut production capacity to keep prices above manufacturing costs.
In the aftermath, memory and storage companies hesitated increase production capacity as the artificial intelligence (AI) boom took shape, according to Thomas Coughlin, a technology consultant who specializes in the data storage industry. “There was little or no investment in new production capacity in 2024 and through most 2025.” That was the root cause of the current supply shortage.
Wall Street expects Micron’s earnings to peak in 2027
Currently, memory chip suppliers Micron, Samsung, and SK Hynix are racing to increase production capacity, and several new wafer fabrication facilities and packaging plants are expected to be operational by 2027. It may take time for supply to match demand, but the market may start looking through demand at that point to the supply glut that is sure to follow.
Micron stock currently trades at 19 times adjusted times earnings, a cheap valuation for a company whose adjusted earnings increased more than 600% last quarter. But I think the market will afford Micron a much cheaper multiple once additional memory chip production capacity comes online. This is where my anecdote about the post-pandemic supply glut is relevant.
Micron reported solid financial results in fiscal 2022. Revenue increased 11% to a record $30.8 billion, and non-GAAP net income soared 38% to $8.35 per diluted share. Yet, shares traded at just 6 times adjusted earnings after the company’s report because the market was anticipating the post-pandemic supply glut.
This time around, Wall Street still expects Micron’s adjusted earnings to peak at $92.35 per diluted share in fiscal 2027 before declining 78% to $20.57 per diluted share in 2029. If the market affords Micron the same valuation multiple that it did when the last memory chip cycle peaked (i.e., 6 times adjusted earnings), the stock will trade at $554 per share in late 2027, assuming Wall Street’s forward earnings forecast is correct.
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Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Micron Technology and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
