Micron Has Surged 207% This Year. Brace for a Steep Pullback.

Shares of Micron Technology (NASDAQ: MU) are up 207% so far in 2026 (as of Friday market close).

While the rally has been impressive, investors may now be wondering whether the company's rapid business improvement is beginning to slow.

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Micron's rally has been extraordinary

Micron sells DRAM, which helps processors handle data, and NAND, which stores it. The company also makes high-bandwidth memory (HBM), an advanced type of DRAM used in artificial intelligence (AI) systems.

AI data center spending has increased demand for HBM and conventional server memory, while supply remains tight. Micron is shipping HBM4 in high volumes for its lead customer. Since HBM uses much more wafer capacity than conventional DRAM, rising HBM production also limits the supply of ordinary memory chips.

These favorable conditions helped Micron report revenue of $41.5 billion and adjusted earnings per share (EPS) of $25.10 in the third quarter of fiscal 2026 (ending May 28, 2026). Management expects revenue to be in the range of $49 billion to $51 billion and adjusted EPS in the range of $30 to $32 in the fourth quarter.

Expectations may now be running ahead of the cycle

Memory earnings are cyclical. High prices encourage producers to add capacity, which can eventually weaken selling prices and margins.

While DRAM and NAND prices are still rising, the pace of increase is expected to slow sharply. Micron's average DRAM selling prices rose in the low-60% range sequentially in the third quarter, while NAND prices increased in the mid-80% range. However, TrendForce, a Taiwan-based industry intelligence and consulting firm, expects contract prices in the third calendar quarter to rise only 13% to 18% for conventional DRAM and 10% to 15% for NAND.

PC manufacturers are rebuilding DRAM inventories, while cloud providers are increasing server-memory purchases ahead of expected supply shortages in 2027. This supports Micron's near-term demand, although some of this early buying could reduce purchases in later quarters.

Parts of the NAND market are showing early signs of cooling. TrendForce found that NAND wafer prices stopped rising in July as high costs and weak consumer demand made buyers cautious, resulting in very limited trading activity.

Micron is currently trading at just 5.5 times one-year forward earnings, which appears cheap. However, a low forward price-to-earnings multiple can be misleading for a cyclical company when the estimate is based on unusually high earnings.

Triggers for pullback

Slower increases in DRAM and NAND prices could cause Micron's profit margins to peak and analysts' earnings forecasts to stop rising. Wall Street's fiscal 2027 EPS estimate for Micron has jumped from $95.80 three months ago to $154.70. However, it has increased by only 1.2% over the latest month. If slower memory price growth causes earnings upgrades to stall or reverse, Micron's low forward earnings multiple may prove misleading.

Micron is increasing capital spending, with fiscal 2026 expenditures expected to reach roughly $27 billion. However, several major capacity projects will not begin contributing until mid-2027 or later. Hence, slowing earnings growth is a more immediate risk to the stock than a sudden increase in memory supply.

The bearish thesis could fail if HBM demand continues to exceed supply, the company executes its HBM4 ramp-up successfully, and gross margin remains elevated. Delays in new capacity could also extend the current memory cycle and keep earnings stronger for longer.

But I would wait rather than chase Micron after its extraordinary rally.

Manali Pradhan, CFA 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.