Micron Has Surged Nearly 700% Over the Past Year -- Here Is What the Valuation Says About Its Next Move

Micron (NASDAQ: MU) has been one of the hottest stocks over the past year. The stock has tripled in 2026 and is up nearly 700% over the past year, as of this writing. Despite that huge move, the stock trades at a minuscule forward price-to-earnings (P/E) ratio of below 6 times fiscal 2027 (ending August 2027) analyst estimates.

The reason for Micron's low valuation is that the memory market has historically been highly cyclical. With cyclical stocks, history often teaches us to buy when P/Es are high and sell when P/Es are low. The reason for this is that when commoditized markets are booming, companies generally increase capacity, and the markets eventually crash. You can see plenty of examples in memory, natural gas, fertilizer, and shipping, just to name a few markets. Capacity then leaves the market, demand naturally grows, and the next boom cycle is around the corner.

However, there is good reason to think that this memory cycle is much different from past ones. First, it is tied directly to one of the most important technological innovations of our time, artificial intelligence (AI), and the AI capex cycle still looks to be in its early innings. The massive data centers being built require a huge amount of memory, but the industry is failing to keep up with demand.

Micron gets about 75% of its revenue from DRAM (dynamic random access memory), and 25% from NAND (flash). The DRAM market is being driven by demand for high bandwidth memory (HBM), which gets packaged with graphics processing units and other AI chips to increase power efficiency and reduce latency. HBM demand is tied to demand for AI accelerators, but the memory industry is struggling to keep up with capacity. ASML is the only company that makes the machines needed to manufacture both HBM and advanced AI chips, and it can make only so many each year. At the same time, HBM requires about triple the wafer capacity of regular DRAM, further constraining capacity, while advanced packaging capacity is also limited. As a result, it takes much longer to produce HBM.

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With the big three memory makers dedicating much of their resources to HBM, overall DRAM and flash supply remains limited, causing prices to skyrocket. This is driving Micron's revenue growth while greatly expanding its gross margins.

While this kind of dynamic would typically correct itself in a couple of years, the industry can't keep up, given the supply hurdles in place and the pace of demand growth. In fact, demand is so strong that chip companies are now racing to lock in long-term deals to secure memory supplies. This bodes well for Micron and is why it seems history won't repeat itself this time around, making Micron a top AI stock to own.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML and Micron Technology. The Motley Fool has a disclosure policy.