Should You Buy Micron Before Sept. 30?

One of the biggest beneficiaries of the artificial intelligence boom has been Micron Technology (NASDAQ: MU). Among the "big three" global players that can produce advanced DRAM memory, Micron's financial profile has improved significantly, thanks to the insatiable memory appetite of AI systems. And as the AI era moves from the generative to the agentic phase, these demands seem only set to increase.

Of course, that has also been reflected in Micron's stock price, which has delivered a 1,300% total return over the past five years -- that's a fourteen-bagger.

After that big a run, is this high-flying stock still a buy? Micron reports its fiscal fourth-quarter earnings on Sept. 30. Here's what to look out for.

Micron still trades at a low P/E

Today, Micron currently trades at 22.9 times trailing earnings but just 6.6 times the earnings estimates for the upcoming fiscal year, which ends in August of 2027. The reason for the low forward P/E ratio is that Micron has traditionally been a highly cyclical business, and investors fear that next year's huge earnings estimates will mark a peak in this cycle.

There are a few reasons for this. First, memory cycles typically only last two years or so, and the monster up-cycle for memory really began about a year ago, making next year's earnings the culmination of the past two-year cycle. So, investors scarred by past memory cycles are wary of bidding Micron higher.

Micron and its major competitors have also invested heavily in new memory plants slated to come online in 2028, increasing supply. Micron, for its own part, has six new fab projects in development in addition to expansion plans at its current facilities. Its massive new Idaho fab will come online next year and begin producing DRAM wafers in 2028. Micron's main Korean competitors are also building new memory fabs, which will begin coming online in 2028 and 2029.

That incoming supply is one concern, especially if AI companies figure out a way to use less memory going forward. Already, it appears that Nvidia (NASDAQ: NVDA) has "down-spec'ed" the memory requirements for its upcoming Rubin systems to 4-hi high-bandwidth memory (HBM), down from the originally planned 8-hi or 12-hi. This is because HBM is becoming very expensive, and higher-stack sizes may become uneconomical for many workloads.

Massive supply, combined with potentially lower training memory requirements, could lead to oversupply.

Image source: Getty Images.

But there is also a bullish scenario

Even if new-age AI systems "down-spec" their HBM to only 4-hi from 8-hi, that doesn't necessarily mean that the up-cycle is over. After all, memory is in an absolute shortage right now, with some industry experts believing growing demand is two to three times higher than supply, while others think it may be as much as 10 times higher.

Even 4-hi HBM also takes a lot of capital equipment, at least three times more than traditional DRAM, which in turn detracts from the supply of traditional DRAM bits. Therefore, it may still be hard for supply to catch up with demand, even with the new supply coming on in 2028 and 2029. On the last earnings call in June, Micron CEO Sanjay Mehrotra admitted that the company had no line of sight to when supply would catch up to demand. Other industry executives have said that shortages will last through 2030.

Many customers have now signed up for long-term, take-or-pay agreements, often lasting up to five years, with obligations to buy a specified amount of bits at price floors from Micron. That is also a big difference between today's environment and past cycles, when memory pricing could soar or crash in any given year.

What to watch for

On the last earnings call, Micron's management noted that it was targeting locking in 50% of its revenue under these LTAs. As of last call, it had already secured roughly 20% of its DRAM bits and 33% of NAND bits under LTAs. So, investors should look for progress on that front. Similarly, look out for commentary on Nvidia's down-spec'ing to 4-hi HBM for its upcoming Rubin systems, and what Micron management says about how that may affect demand.

Finally, since Micron had taken CHIPS Act funding for its new U.S. fabs, it has been restricted from executing share repurchases. However, Micron will be able to buy back stock beginning on Dec. 9. Investors should look for commentary on any share repurchase plan to be executed on that date.

Micron is a hold, but a buy for those without exposure

The memory business has traditionally been highly volatile, making it difficult to assess Micron's earnings growth in any given year. However, the presence of HBM for generative AI systems, as well as these new long-term take-or-pay agreements with customers, could extend this cycle much further. As such, there is a wide range of possibilities for Micron's earnings power over the next few years.

If Micron's earnings power reverts to its pre-2024 level, the stock could retreat significantly. However, there is also a good chance that this new, higher level of earnings power will be sustained for quite some time. If that's the case, then Micron could be significantly undervalued.

Investors already holding a position should continue to hold, and listen for positive or negative comments on the topics above on Sept. 30. However, those without a position should consider taking a small starter position, as the upside could still be substantial, even after the stock's multiear run.

Billy Duberstein and/or his clients have positions in Micron Technology and the following options: short January 2027 $110 puts on Micron Technology, short January 2027 $195 calls on Micron Technology, and short March 2027 $100 puts on Micron Technology. The Motley Fool has positions in and recommends Micron Technology and Nvidia. The Motley Fool has a disclosure policy.