Up 214% This Year, Is It Too Late to Buy Micron Stock?

With shares up 214% year to date, Micron Technology (NASDAQ: MU) remains one of the biggest winners in the generative artificial intelligence (AI) megatrend -- far outpacing early infrastructure leaders like Nvidia, which is up by a relatively modest 14% over the same time frame.

The reason for the optimism around Micron is simple. Technology companies have realized that access to enough high-bandwidth memory is one of the primary constraints to making better AI models. This has set off a surge in demand for Micron's products, and those of its peers, that has far exceeded their ability to supply with their current fabrication facilities. As a result, memory makers have been able to substantially boost prices. Micron's now enjoying a period of high top-line growth and margins.

But what could come next for the company?

Memory supply is now a primary AI bottleneck

At the start of the AI revolution, the development of generative AI models was constrained largely by the availability of high-end GPUs to train them on -- processors designed by companies like Nvidia. These chips performed the heavy computational lifting involved in running and training the algorithms. However, over time, GPUs became significantly more powerful, and also more widely available. This, combined with the need for those chips to be able to rapidly access the data they were analyzing, led to a sharply increased the need for memory capable of keeping up.

Micron has benefited tremendously from this trend. In its fiscal 2026 second quarter (which ended Feb. 26), revenue soared by 196% year over year to $23.9 billion. And while this result was largely driven by demand for its high-bandwidth memory products for AI data centers, less trendy businesses like its automotive and mobile segments are also riding the wave higher.

Demand for high-bandwidth memory is so high that it is soaking up production capacity that would have otherwise gone to other types of memory, leading to soaring prices and margins across the board. Micron expects next quarter's gross margin to reach a software-esque high of 81%, with earnings per share jumping roughly tenfold year over year to $19.15 at the midpoint.

Can AI break the boom-and-bust cycle?

Micron's valuation is still remarkably low despite its impressive operating momentum. With a forward price-to-earnings (P/E) multiple of just 7.6, shares trade for a dramatic discount to the Nasdaq's average estimate of 26, as well as to the chipmaker Nvidia, which boasts a forward P/E of 24.

The numbers suggest the market is not confident that Micron will be able to break out of the boom-and-bust cycles that have consistently defined the memory hardware industry. And it's easy to see why.

Unlike GPUs or other types of computer hardware, memory tends to be highly commoditized, which means there isn't a big difference between chips created by Micron and those produced by rivals like SK Hynix or Samsung. The big producers typically compete based on price. And sharp increases in demand have historically led all the memory producers into a race to ramp up production. This has usually led to supply gluts, price slumps, and down cycles.

This story played out during previous memory boom cycles, such as the PC boom in the 1990s, as well as the cloud computing and mobile phone booms of the late 2010s. And with Micron planning to invest an eye-popping $200 billion into new U.S. production capacity, it seems inevitable that eventually, supply will catch up to and exceed demand, and the company's growth rate and margins will come back down.

Image source: Getty Images.

What comes next for Micron?

Micron's low valuation suggests the market is already pricing in a future slowdown. So even though the current memory boom cycle looks set to end when supply eventually catches up to demand, a massive crash in the stock price looks unlikely.

That said, investors who are looking for a safe stock to hold for the long term should probably look elsewhere, because Micron seems overly dependent on what remains a highly speculative industry.

As investors, we still don't know whether generative AI will be the world-changing megatrend tech leaders are promising or fall short of expectations. Micron's future will depend on the answer to this question.

Will Ebiefung 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.