Here's Why I Will Never Pay Anywhere Near $1,100 for Micron Stock

Micron Technology (NASDAQ: MU) stock has surged more than 800% during the past 12 months on soaring demand for the company's high-bandwidth memory (HBM) for data centers, which has become a key component in the artificial intelligence (AI) hardware stack.

Despite its incredible gains, Micron stock is still technically cheap when valued against its future potential earnings. However, that paints an incomplete picture, especially with some cracks forming in the AI demand landscape. Here's why I won't buy Micron stock for anywhere near its closing price of $1,145 on June 29.

Image source: The Motley Fool.

Micron is playing a critical role in the AI boom

Graphics processing units (GPUs), such as those Nvidia supplies, are the primary data center chips used for AI training and inference. HBM stores data in a ready state for when GPUs are ready to process it, which speeds up AI workloads. A low memory capacity would cause bottlenecks, as GPUs would have to pause while waiting to receive more information.

Micron recently started shipping its HBM4 chips, which offer 60% more capacity than its previous HBM3E solution, with a 20% improvement in energy efficiency. Nvidia will use this product in its new Vera Rubin GPU systems, which are expected to lead the industry in terms of AI processing power when they ship to customers in the second half of 2026.

But Micron also has a big opportunity in the personal computing and smartphone segments. AI models are gradually becoming more efficient, so many devices can now run them independently of external data centers, as long as they have a sufficiently high memory capacity. This development is driving a surge in demand for Micron's direct random access memory.

Moreover, Micron says the average vehicle with even basic autonomous capabilities requires more than five times the memory capacity of a traditional vehicle. But it gets better, because the company says humanoid robots need a whopping 10 times more memory than the average autonomous vehicle. As AI seeps into the physical world, these industrial segments could become the next major growth areas for Micron.

Micron's revenue and earnings are skyrocketing

Micron generated a record $41.4 billion in revenue during its fiscal 2026 third quarter (ended May 28), a staggering 346% increase from the year-ago period. AI-related memory sales were responsible for the majority of that incredible momentum, across all four of the company's revenue categories:

Data source: Micron Technology.

The cloud memory business is where Micron reports sales of its HBM for the data center, while the core data center segment is where it accounts for sales of storage solutions. Together, they accounted for the bulk of the company's total revenue, which isn't surprising given most AI workloads are still processed using centralized infrastructure. However, its results in the mobile and automotive businesses also highlight the impact of AI outside the data center.

Since there is currently a severe shortage of memory worldwide, Micron can dictate prices, and that is significantly boosting its profit margins. As a result, the company's earnings exploded by 1,368% to $24.67 per share in the third quarter.

Management's forecast for the current fourth quarter suggests further momentum lies ahead. The company is expected to generate $50 billion in revenue and earnings of $30.73 per share, representing year-over-year increases of 342% and 985%, respectively.

Micron stock is cheap, but there's a catch

Based on Micron's trailing-12-month earnings of $44.23 per share, its stock is trading at a price-to-earnings (P/E) ratio of 25.6. That means it's cheaper than the Nasdaq-100 technology index, which has a P/E ratio of 34.1.

According to Wall Street's average forecast (from Yahoo! Finance), Micron's earnings could soar to $148.03 per share in fiscal 2027, placing its stock at a forward P/E ratio of just 7.6. A company growing as fast as Micron would normally command a premium valuation, so why is it so cheap? Simply put, I think many investors feel the memory boom will be relatively short-lived.

Most memory suppliers are frantically building more manufacturing capacity, which will eventually cause chip prices to crash. When supply eventually catches up to demand, it will be very hard for Micron to increase its earnings from the current level, so its stock might be more expensive today than its forward P/E suggests.

Micron Chief Executive Officer Sanjay Mehrotra doesn't think the memory shortage will ease until around 2028, but that assumes demand remains as robust as it is now -- which brings me to my next point. A recent survey from investment bank UBS Group found that 60% of companies are starting to curb their AI spending by routing tasks to cheaper models, which use less computing power. That isn't good news for chip suppliers.

The survey follows recent comments by Alphabet CEO Sundar Pichai, who said he was fielding complaints from many of Google's enterprise customers about the rising cost of using AI. In addition, Uber Technologies' chief operating officer recently said AI spending is getting harder to justify, as companies such as Anthropic and even Microsoft implement passive price increases to offset soaring infrastructure costs.

As a result, despite Micron's seemingly attractive valuation, I wouldn't feel comfortable buying it here. Any sign of a slowdown in data center spending during the next few quarters could spark a severe decline in the stock, and I think that is an increasingly likely outcome.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Micron Technology, Microsoft, Nvidia, and Uber Technologies. The Motley Fool has a disclosure policy.