Why Micron's Latest Long-Term Deals Are a Game-Changer for Investors

The memory market has historically been a commoditized industry that has experienced major boom-and-bust cycles. Demand from new technologies will often cause prices to surge, only for the market to eventually get hit with new supply and prices to crash.

That is one of the main reasons why Micron Technology's (NASDAQ: MU) stock trades at a forward P/E of just over 5 times fiscal 2027 (ending August) analyst estimates despite soaring growth, as investors expect the current supercycle to eventually end.

Micron is one of the big three DRAM (dynamic random access memory) makers, along with its Korean counterparts SK Hynix (NASDAQ: SKHY) and Samsung. It currently has around a 24% market share in the DRAM market and derived 73% of its revenue from this type of memory last quarter (its fiscal Q4). It also has a 15% share in the NAND (flash) market, which made up 26% of its sales last quarter. With demand for memory far outstripping supply, Micron has seen its revenue surge and gross margins balloon largely on the back of higher DRAM and NAND prices.

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AI driving memory prices

The memory market is currently being driven by the artificial intelligence (AI) infrastructure build-out. Graphics processing units (GPUs) and other AI accelerators need to be packaged with a special form of DRAM called high-bandwidth memory (HBM) to optimize the performance of these ultra-expensive chips; otherwise, they'd be sitting idle too long. At the same time, AI model training requires that its data be stored in massive solid-state drives (SSDs) consisting of flash memory.

The big three memory makers have turned much of their efforts and resources toward HBM, which has led to shortages throughout the memory industry and rapidly rising prices for both conventional DRAM and NAND. Meanwhile, keeping up with demand for HBM has been difficult, as memory makers are competing for the same limited number of extreme ultraviolet (EUV) lithography machines used to make advanced logic chips, such as GPUs and CPUs (central processing units). At the same time, HBM also uses upwards of three times the wafer capacity of ordinary DRAM. As a result, SK Hynix has said that 2027 will see the largest supply-demand imbalance in the industry's history and that DRAM will remain in short supply until at least 2030.

New supply worries

That said, investors have been increasingly worried that a new set of memory supply will hit the market much sooner, coming from China. China's CXMT has been taking share in the DRAM market, going from just 4% in Q2 2025 to 10% in Q2 2026. Meanwhile, the company is looking to launch a data-center memory product based on a new architecture later this year. While it would be unlikely to be allowed in U.S. data centers, it could be allowed in other regions and help add supply to the market. Adding fuel to the fire are reports from Korean trade publications that predict that the memory market will be flooded with new supply in 2029 and that by 2030 "the supercycle could be over and the industry could enter a downturn."

Micron and other memory makers are well aware of the cyclical risk in the industry, and as such have been signing long-term deals for the first time. Micron has signed 26 SCAs (strategic customer agreements) for both DRAM and NAND, covering about 35% of its sales through 2030. Longer-term deals can help mitigate some of the industry's cyclicality, but 2030 still lines up with the Korean trade publications' prediction that the market will falter.

Important long-term deals

That's why important news recently came out from analysts at Keybanc that memory customers were looking to extend their agreements beyond 2030. The analysts believe that HP and Dell extended their SCAs with Micron into 2031, while, even more notably, it said Alphabet has been in talks with memory companies to extend its long-term agreements out to 2035.

While the memory cycle may not last until 2035, it is a good sign that it may last a lot longer than expected. Meanwhile, Keybanc projected that in the near term, DRAM prices are expected to increase by 15% to 20% quarter over quarter and NAND prices by over 20%. It also noted that Micron was quoting SSD prices to be up 40% to 45% quarter over quarter.

With near-term pricing still surging, the stock cheap, Micron buying back stock, and the memory cycle perhaps set to last considerably longer than expected, maybe it's time to buy this AI stock on the recent dip.

Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, HP, and Micron Technology. The Motley Fool has a disclosure policy.