Why Shares of Micron Technology Shot Up 53% Last Month

Shares of Micron Technology (NASDAQ: MU) shot up 53% in April, according to data from S&P Global Market Intelligence. The memory chip maker is benefiting greatly from a growing shortage of supply for artificial intelligence (AI) use cases, which is driving up selling prices. Shares of Micron stock are up 600% over the past 12 months, giving it a market cap of $611 billion and making it the 19th-largest company in the world.

Here's why it was soaring yet again, and whether investors should get in on the party as the AI revolution keeps marching on.

Increased memory chip prices

As many investors know by now, AI infrastructure requires a massive amount of computer chips to train and operate. In the early days of AI growth, this was mainly the high-powered GPUs sold by Nvidia. Now, high-bandwidth memory chips are getting in on the party because of the need for rapid data transfers between data centers.

This has led to demand greatly outstripping supply, giving manufacturers like Micron -- one of the few memory chip makers in the world -- immense pricing power when selling to AI infrastructure builders. In recent weeks, there have been increasing reports and confirmations from these big tech providers that the memory shortage is not abating, which is why Micron stock kept climbing in April alongside the broader market.

In Micron's March earnings report, it reported revenue of $24 billion, up nearly 200% year over year. Operating income was $16 billion, or a 68% margin, which illustrates the price increases Micron has passed through to customers. Right now, with demand still greatly outstripping supply, the customers are forced to eat these price hikes or risk falling behind in the AI race.

Image source: Getty Images.

Should you buy Micron?

Despite this soaring stock price, Micron trades at a price-to-earnings ratio (P/E) of 26, which is lower than many large technology AI companies. This is because its net income has gone from negative a few years ago to $24 billion in the last twelve months. 2026 is likely to post even higher record profits if the supply shortage continues.

Memory chip stocks are historically highly cyclical, meaning the worst time to buy them is when their earnings are going through an upcycle, even if the P/E ratio doesn't look overly expensive at the moment. That is the case with Micron today. Eventually, supply will match demand, and all these price hikes will come back to earth, along with Micron's net income.

Brett Schafer 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.