Could This AI Leader Be the Market's Best Performer Next Year?

The returns of many artificial intelligence (AI) stocks have been a significant driver of the market's gains over the past year, and one standout stock has been the data center memory company Micron Technology (NASDAQ: MU).

Micron's shares have increased about 217% since the beginning of 2025, outpacing the S&P 500's 16% returns. And there are a few good reasons why it could continue marching higher in 2026 and be one of the market's best performers next year, too.

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Micron's sales and earnings continue to rocket higher

Micron just reported its fiscal 2026 first-quarter results (ended Nov. 27, 2025), and the company proved that it can continue growing its top and bottom lines at a healthy clip. Sales rose by 56% year over year to $13.6 billion, outpacing Wall Street's consensus estimate of $12.8 billion. And non-GAAP (generally accepted accounting principles) earnings surged 167% higher to $4.78 per share, beating analysts' consensus estimate of $3.95.

Micron designs and manufactures memory that is used in AI data centers, with its dynamic random access memory (DRAM) and NAND flash memory being key drivers of its growth. While the memory business can be cyclical, Micron is clearly benefiting from a massive surge in AI spending.

Not only is spending on the company's DRAM and NAND memory soaring, but rising prices for these memory products and increased demand for other products pushed Micron's gross margins up 11 percentage points from the year-ago quarter, to 56%. That's an impressive increase, and it's even more notable considering that Micron's management says they'll substantially increase in the second quarter, too, to 67%.

Demand for DRAM memory will likely be very high through 2026

Micron likely has more to look forward to in 2026, as demand for its DRAM memory -- which accounts for more than half of its sales -- remains high. Tech companies, including OpenAI, Alphabet, Meta Platforms, and others, require substantial amounts of this memory as they invest hundreds of billions of dollars in building AI data centers.

Data from Counterpoint Research shows that DRAM memory processor prices could double next year due to extremely high demand. This will be a boon to Micron's memory business, as the company's share of the DRAM market has expanded to nearly 26%, and it could continue rising next year as the company takes advantage of the elevated levels of memory demand.

Micron's strong first-quarter results are a good indicator that the company is already benefiting from this pent-up demand, with Micron CEO Sanjay Mehrotra saying in prepared remarks, "This growth in AI data center capacity is driving a significant increase in demand for high-performance and high-capacity memory and storage," adding later that, "We expect server demand strength to continue in 2026."

Even with its current gains, the stock is relatively cheap

Most artificial intelligence stocks, especially the ones that are far outpacing the market's gains, have high valuations. But that's not true in Micron's case. The company's stock has a price-to-earnings ratio of just 21, compared to the average P/E ratio of 44 for the broader tech sector.

This makes Micron's stock significantly cheaper than that of many other tech companies, and a surprisingly good deal, considering its outstanding returns over the past year. With the company continuing to deliver strong sales and earnings, buying Micron stock appears to be a no-brainer.

Just keep in mind that Micron's share price can sometimes be volatile, especially around the time it releases its quarterly results. But considering that tech companies can't get enough memory right now, data center spending remains elevated, and Micron's shares are cheap by comparison, adding to an existing position or starting a new one looks like a smart move.

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy.