Micron Stock Has Gained Roughly 190% in 2026. History Says Its Next 30%+ Drawdown Could Come at Any Time.

Micron's (NASDAQ: MU) stock has rallied nearly 190% this year. The artificial intelligence (AI) market's rapid expansion, which drove more data centers to upgrade their infrastructure to handle the latest AI applications, fueled those massive gains.

However, Micron's historical stock performance suggests investors shouldn't be surprised if it pulls back by more than 30% later this year. Let's see why it could be headed for a steep drawdown -- and if that decline would be a red flag or a buying opportunity.

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Is Micron's stock still cyclical?

As one of the world's leading producers of DRAM and NAND memory chips, Micron's growth is usually tightly tethered to the memory market's boom-and-bust cycles. When demand outstrips supply, prices surge as Micron and its peers scramble to produce more chips. But that increased production often leads to supply gluts, and memory chip prices pull back again.

Micron went through two and a half of those cycles over the past decade. Slowing sales of smartphones and PCs caused memory chip prices to plummet in 2015 and 2016, but the rapid expansion of cloud data centers and new smartphones lifted the market in 2017 and 2018.

In 2019, the trade war between the U.S. and China chilled the memory market again. Still, its growth accelerated in 2020 and 2021 as the pandemic sparked fresh demand for remote-work electronics (such as tablets and laptops) and cloud-based services.

In 2022 and 2023, inflation, rising interest rates, and a post-pandemic collapse in consumer electronics crushed the market again. But starting in 2024, the AI boom created an insatiable demand for high-bandwidth memory (HBM) chips and enterprise solid-state drives (SSDs) to feed AI accelerator clusters. Since HBM chips require triple the wafer capacity of a standard DRAM chip, their production choked the supply of traditional PC and server memory chips.

The bulls believe this AI-driven supercycle will last longer than Micron's previous growth cycles. From fiscal 2025 (which ended last September) to fiscal 2028, analysts expect its revenue to surge from $37.3 billion to $295.2 billion, while its net income soars from $8.5 billion to $176.8 billion. That's a jaw-dropping growth rate for a stock that trades at 11 times this year's earnings.

However, analysts tend to overestimate Micron's growth potential when the memory market is hot and underestimate it when it cools. Its stock also experiences massive peak-to-trough drawdowns (73% from 2014 to 2016, 55% in 2018, 43% in 2020, 51% in 2021, and 36% in 2024) whenever investors get too optimistic about its long-term growth potential. Therefore, history suggests that a decline of 30% or more could really happen at any time -- even if Micron is well-poised to profit from the AI market's soaring demand for more DRAM and NAND chips.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.