Is Micron Stock Too Cheap to Ignore?

Micron Technology (NASDAQ: MU) stock has been one of the best to own recently. If you were savvy enough to buy shares at the start of 2025, you're already up more than 520% on your investment. However, after climbing so much in such a relatively short time period, how can a stock still be considered cheap?

One way is to observe that Micron's stock still has plenty of upside because it trades at a much lower valuation than its peers, and that could be for good reason.

Is Micron's stock too cheap to ignore? Or is there something else at play here?

Image source: Getty Images.

Micron isn't your typical tech stock

When most people evaluate tech stocks, they tend to assume the revenue generated by growth will be fairly permanent. This notion has arisen from the rise of subscription and software-as-a-service (SaaS) models and has been fairly accurate in some respects.

However, there are also other segments of tech that are cyclical, with memory chips being one of them. There isn't a ton to separate one memory chip manufacturer from another, so they end up being commoditized products, subject to the economic demand cycle.

It's pretty clear we're in a chip boom right now, thanks to massive spending on artificial intelligence (AI). Memory chips are an integral component of AI systems, as they allow computing devices to temporarily store information for computing tasks that they're performing.

Micron is one of the top memory manufacturers and is seeing demand skyrocket. High-bandwidth memory (HBM) is the primary type utilized for AI products. Micron expects the total addressable market for HBM to increase from $25 billion in 2025 to $100 billion by 2028.

On top of that, Micron told investors that it can only meet half to two-thirds of the demand in the medium term from its clients. So, not only is Micron unable to meet current demand, but that same demand is expected to triple over the next three years. That's a huge bull case for the stock, but the problem is that this industry is cyclical.

Micron and others are building new fabrication facilities to meet rising demand. Eventually, supply will return to normal levels, causing Micron's profits and revenue to drop as demand levels off and chip prices decline.

The big question is when that will happen. If it happens next year, then Micron probably isn't a smart investment. But if that occurs five years from now, there is a lot of money to be made.

The market apparently isn't buying the long-term thesis, as Micron stock currently trades for 8.3 times forward earnings.

Data by YCharts.

The market is essentially saying the demand crunch will be resolved shortly, and Micron deserves to be valued like a cyclical business rather than a typical tech one.

As an investor, you must decide if this is right or wrong. If it's wrong, there's massive upside. If it's right, Micron isn't too far off its long-term average valuation, so it's probably a fairly safe investment to make right now.

Keithen Drury 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.