Micron Shares Surge: What's Driving the Sudden Momentum

Micron (NASDAQ: MU), one of the world's largest producers of DRAM and NAND memory chips, was once considered a cyclical chip stock. Its growth was tethered to the memory chip market's boom-and-bust cycles, which usually occurred every few years.

But over the past 12 months, Micron's stock surged nearly 720%. What's driving that sudden momentum, and can it head even higher?

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Why is Micron's stock skyrocketing?

In the past, Micron's growth was largely driven by the smartphone and PC markets. But over the past two years, the AI market's rapid expansion boosted its sales of high-bandwidth memory (HBM) DRAM chips and NAND (flash) memory chips for enterprise solid-state drives (SSDs).

Both types of memory chips directly feed data to the processors (including Nvidia's (NASDAQ: NVDA) GPUs) that power AI accelerator clusters in data centers. HBM chips handle the active GPU compute, while NAND chips expand the pipeline for bulk data transfers.

As Micron pivots more of its production toward AI-driven memory chips, its fabs are running out of bandwidth to manufacture conventional PC, smartphone, and server chips. That shortage, which its industry peers also face, is driving up the prices of conventional DRAM and NAND chips. At the same time, demand for HBM and SSD chips continues to outstrip supply. That crunch is driving up the prices of all of its memory chips.

Micron's stock is soaring because the bulls believe this AI-driven supercycle will last much longer than its prior growth cycles. From fiscal 2025 (which ended last September) to fiscal 2028, analysts expect its revenue to surge more than sevenfold from $37.4 billion to $263.8 billion, while its net income soars from $8.5 billion to $182.0 billion.

Does Micron's stock still have more upside potential?

Micron's growth potential is incredible, and its stock still looks undervalued at 12 times this year's earnings. By comparison, Nvidia -- which is expected to grow its revenue and earnings at a slower rate than Micron -- trades at 23 times this year's earnings. That lower multiple indicates the market hasn't fully revalued Micron as a high-growth AI stock.

Yet it still has plenty of irons in the fire. It's increasing its manufacturing capacity in the U.S., Taiwan, and Singapore, and it's locking its major enterprise customers into long-term strategic agreements through 2030 that feature fixed pricing bands with a high price floor. Those deals should shield its bottom line from any abrupt declines in memory chip prices. I believe these catalysts could drive Micron's stock even higher over the next 12 months.

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