Micron Just Entered the Trillion-Dollar Club. Is It Too Late to Buy the Stock?

Micron Technology (NASDAQ: MU) has been around for nearly 50 years, but these days, this tech giant is experiencing growth you might generally expect from an exciting start-up. This is thanks to the artificial intelligence (AI) boom, which has supercharged demand for the company's memory and storage offerings and translated into significant revenue growth.

As a result, investors have rushed to get in on the stock, pushing the company's market value to new highs. In fact, Micron just recently entered the trillion-dollar club, meaning its market value reached $1 trillion. It joins a handful of other tech giants, including well-known names like Amazon, Microsoft, and Nvidia -- the world's biggest company with a market value of more than $5 trillion.

Now you may be wondering: After Micron's latest gain, is it too late to buy the stock? Let's find out.

Image source: Getty Images.

What market cap tells us

So, first, a quick note about market cap. It's exciting when a company sees its market value rise and reach high levels -- it shows that investors are interested in the stock, and that often is due to the company's performance. That's positive, of course. But, on its own, an increase in market value shouldn't be seen as a buy or sell signal. Just because a company has seen its stock rise doesn't mean the momentum will continue; and the gains don't mean it's ripe for a decline either.

Now, let's consider the specific case of Micron, starting with its role in the AI story. When we think of the training of large language models and putting them to work, we may first think of graphics processing units (GPUs) and other AI chips that power those processes. But there's another key ingredient that must be present, and that's memory. This is where Micron comes in, offering DRAM, NAND, and HBM that are needed at various moments of the training and inference processes -- training involves the feeding of information into the AI model, while inference is the actual thinking process the AI model goes through to do its job.

Micron's soaring revenue

This demand for memory has helped revenue soar quarter after quarter in recent times. In the latest period, it surged nearly 200% to more than $23 billion. And the company set records in revenue, gross margin, earnings per share, and free cash flow. Micron predicted it would set records in these metrics again in the current quarter, to be reported next month.

Moving forward, memory is positioned to become even more crucial for AI. This is because, as AI agents scale up, they will need more memory to power the processes. For example, memory allows for deeper reasoning chains and supports the collaboration of various AI agents.

Agentic AI, seen as the next big wave of AI growth, is the actual application of AI to problems -- these agents use inference to process information, then take steps to complete tasks.

So, though demand for memory has climbed, the need for it may be even greater as the agentic AI era develops -- that's fantastic news for Micron.

Micron's biggest challenge

Of course, Micron isn't alone in the space. The company faces competition from Seagate and other memory giants. But it's important to keep in mind that Micron's biggest problem these days isn't pressure from competitors but instead meeting demand. Due to supply constraints, the company said it's able to fill half to two-thirds of some of its key customers' needs in the medium term. So the challenge Micron faces is managing supply in order to keep growth progressing. As for competition, if the AI story unfolds as expected, there is room for more than one memory player to generate significant growth.

So, Micron could have plenty of bright days ahead. But is the stock a buy now? Its valuation has climbed in recent months, but it's still well below levels of a couple of years ago.

MU PE Ratio (Forward) data by YCharts

While Micron may not look dirt cheap, it remains at a reasonable valuation considering its recent earnings performance and the long-term growth outlook. All of this means that, even after Micron's market cap roared past $1 trillion, the stock still represents a compelling AI buy right now.

Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Micron Technology, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.