After A 170% Rally, Is Micron Stock Cheap?

Core Insights - Micron Technology has experienced a stock increase of approximately 170% year-to-date, driven by the demand for AI infrastructure and its impact on the memory market [2] - The company is trading at attractive valuations of around 13x estimated FY'26 earnings and 11x projected FY'27 earnings, with a consensus revenue growth projection of nearly 55% for the current fiscal year [2] Group 1: HBM and AI Demand - The growth catalyst for Micron is the increasing demand for AI infrastructure, which is creating a premium for high-performance memory products, particularly High-Bandwidth Memory (HBM) [4] - HBM offers vast bandwidth and ultra-low latency, essential for training and operating complex large language models (LLMs) on a large scale, distinguishing it from traditional DRAM [4] Group 2: Supply Constraints and Market Dynamics - The production of HBM faces structural bottlenecks, as it is more complex and wafer-consuming than traditional DRAM, requiring about three times the number of wafers to produce the same amount of bits [5] - Micron's stock appears undervalued at 13x FY'26 earnings, with nearly 57% growth predicted, despite the cyclical nature of memory stocks which often trade at low earnings multiples during peak earnings periods [5][6] Group 3: Transition to HBM and Margins - Micron's shift towards HBM may reduce, but not eliminate, the cyclicality of its operations, as traditional DRAM and NAND markets remain vulnerable to supply-demand fluctuations [6] - The HBM segment is experiencing significant growth, with revenue reaching nearly $2 billion in Fiscal Q4 2025, indicating an annualized rate approaching $8 billion [7] Group 4: Capacity and Pricing Trends - Micron's entire HBM production for 2025 was sold out, ensuring high-margin revenue and strong demand visibility extending into 2026 [8] - The shift in capacity from standard DRAM to HBM is tightening supply-demand equilibrium across the memory market, leading to substantial increases in DRAM pricing, with contract prices rising by 80% to 100% month-over-month for certain categories [8]