Is Micron Turning Into a Steadier Growth Stock?

Micron Technology (NASDAQ: MU) stock has rocketed more than 755% in the past year. Memory chips are now one of the biggest, if not the biggest, bottlenecks in the artificial intelligence (AI) build-out. This has boosted memory prices and sent Micron's earnings soaring.

The stock's forward earnings multiple of 14 is expensive relative to Micron's historical trading range, where it usually trades at under 10 times forward earnings. But this higher valuation could still be attractive if the company can avoid past boom-and-bust cycles and deliver more sustainable growth. Management has a promising strategy to solve it.

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Memory has become vital to the AI build-out

Micron's latest results for the fiscal 2026 third quarter underscore just how strategically important memory has become. Revenue climbed 346% year over year, reaching $41 billion, while earnings per share more than doubled to $24.67. Management expects revenue to reach $50 billion in the current quarter. Gross margin guidance also points to a slight increase to roughly 86%, as memory demand continues to outpace supply.

Every AI system is powered by graphics processing units (GPUs), central processing units (CPUs), and application-specific integrated circuits (ASICs), and these chips all rely on high-performance memory in their architectures. As a result, Micron now expects tight supply conditions to persist beyond calendar 2027.

Micron is locking customers into long-term purchase agreements

This outlook has boosted investor confidence that Micron can produce sustained earnings growth for at least the next few years. The more complicated question is what happens to memory pricing after 2027, when increases in supply and normalizing demand could trigger the next downturn.

On that front, Micron is working to reduce pricing volatility through longer-term customer commitments. During the earnings call, the company highlighted progress on 16 Strategic Customer Agreements (SCAs) -- take-or-pay contracts spanning 2026 through 2030. These are binding commitments for customers to purchase specified volumes, helping Micron lock in demand and improve planning. Management expects at least half of the company's revenue to come from SCAs once the full set of deals is completed.

So far, 14 agreements account for about $100 billion in cumulative revenue, roughly double Micron's trailing-12-month revenue of $90 billion. Just as important, Micron says these SCAs are structured to support gross margins well above prior cyclical peaks -- a key detail if the goal is to make earnings more steady.

What does this mean for investors?

Overall, the SCA strategy could make Micron's business more stable and therefore worthy of a higher earnings multiple. Still, the cyclical risk hasn't disappeared. These agreements cover only part of future revenue. It won't eliminate business volatility, but it may help reduce it.

The stock could certainly push to new highs if the demand outlook stays strong. But investors should keep an eye on manufacturing capacity expansion, including new builds by Micron, Samsung, and SK Hynix, as higher supply can eventually put pressure on pricing. Going forward, Micron's progress signing additional SCAs -- and its margin guidance -- will be critical signals for whether this cycle truly looks different.

John Ballard 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.