Will HBM Rewrite Micron Stock's Boom-Bust Cycle?

Core Viewpoint - Micron Technology's stock has increased over 4x in the last year, yet its valuation remains low at 12x FY'26 earnings and just over 9x FY'27 earnings, indicating market skepticism about the sustainability of memory earnings at cyclical highs [2][3] Demand Structure Shift - The demand for memory, particularly High Bandwidth Memory (HBM) driven by AI, is expanding rapidly, with supply limitations not seen in previous cycles [4] - Micron's current valuation suggests that it does not believe this shift will alter the cyclical nature of the memory market [5] HBM Market Dynamics - HBM is fundamentally different from prior memory cycles, as it is integrated into AI accelerators and data center systems, leading to long qualification cycles and multi-year contracts with prepayments [8] - Micron's HBM capacity is sold out until 2026, providing a stable revenue base and transitioning the company from a price taker to a price maker [8] Competitive Advantages - Micron's HBM3E products are more power-efficient, using about 30% less power than competitors, which is crucial for hyperscale data centers [9][10] - The company excels in advanced DRAM nodes, positioning itself well for the upcoming HBM4 transition expected in mid-2026 [11] Revenue and Cash Flow Outlook - Micron generated approximately $37.38 billion in revenue over the past twelve months, with projections to nearly double revenue to around $74.80 billion in the current fiscal year due to rising HBM demand [12] - The company is investing heavily, with FY2026 capex forecasted at around $20 billion, while operating cash flow is increasing alongside margins, with gross margins reaching about 57% in Q1 [13] Risk Assessment - The downside risk in the next cycle appears lower than in previous cycles, as HBM requires significantly more wafer capacity than standard DRAM, creating a structural undersupply [15] - Despite the stock surge, Micron trades at multiples lower than most AI infrastructure competitors, suggesting potential for gradual reassessment of its earnings durability [16]