Micron's AI Memory Boom: Boom-Bust Cycle Broken?

Micron Technology is experiencing unprecedented earnings growth, with its fiscal year 2026 earnings per share estimated at $73.23, a dramatic increase from a negative $5.34 in fiscal year 2023. This surge is largely attributed to the critical role of high-bandwidth memory (HBM) chips in the AI hardware architecture, especially for training large language models.

Micron has evolved beyond being a mere DRAM and NAND supplier to become an integral part of AI systems, particularly those using powerful GPUs like NVIDIA's. This strategic shift is reflected in the company's third quarter of fiscal year 2026 results, which surpassed revenue expectations. Analyst projections for Micron's long-term earnings power have been significantly revised upward.

Despite this strong operational momentum, Micron's stock trades at a forward price-to-earnings multiple of 6.2x, a valuation that appears low given its 66.6% return on equity and 84% gross margins. This suggests the market may still be viewing Micron through the lens of its historical cyclicality. However, multi-year supply agreements totaling over $100 billion in minimum contracted revenue, with contractual price floors, provide structural security and safeguard gross margins.

The company's entire HBM production for fiscal year 2026 is sold out, with shortages expected to persist beyond 2027. Skeptics, including Michael Burry, point to Micron's past volatility, where gross margins plummeted during the last downturn, as a reason for caution. They anticipate that future capacity expansions could lead to another significant margin contraction.