Micron Know-how(NASDAQ: MU) has been one of many largest winners within the generative synthetic intelligence (AI) infrastructure growth, with shares up by over 800% over the past 5 years. The rally has been pushed by rising demand for its high-bandwidth reminiscence chips, that are very important elements in AI knowledge facilities. For the time being, demand for reminiscence chips nicely outstrips provide, and given the forecasts for the AI infrastructure build-out and the way lengthy it takes to get new foundries up and working, that state of affairs is unlikely to alter for fairly awhile.
However after its spectacular positive factors of current years, can Micron inventory nonetheless flip $1,000 invested at present into $10,000 sooner or later, or is that this rally extra prone to fizzle out quickly? My view: Traders should not get too snug.
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Many analysts imagine generative AI might be as transformational as earlier megatrends just like the web and cell phones. And to capitalize on the chance, expertise giants are spending eye-popping sums of cash to build up the {hardware} wanted to construct knowledge facilities that run and prepare giant language fashions — and that {hardware} contains reminiscence chips.
In accordance with Fortune journal, the 4 main hyperscalers have dedicated to spending a mixed $700 billion on knowledge facilities this yr alone. And with excessive ranges of funding anticipated to proceed for the approaching years, Micron is nicely positioned to proceed producing outsize development and earnings.
Its fiscal 2026 second-quarter outcomes had been explosive. Income soared by nearly 200% yr over yr to $23.86 billion, pushed by power throughout the corporate’s enterprise segments. And whereas the surge in reminiscence {hardware} demand has been pushed particularly by the sorts of chips utilized in AI knowledge facilities, a shortfall in total manufacturing capability has triggered costs to rise for all types of reminiscence chips, together with those used for issues like smartphones, laptops, and different shopper units.
Because of this, Micron’s cell and shopper enterprise unit noticed beautiful momentum too, with income leaping 245% to $7.71 billion. Extra impressively, working margins jumped from simply 1% to 76%, remodeling a enterprise that was barely breaking even right into a money cow with margins akin to these of software program corporations.
A historical past of booms and busts
Micron Know-how’s current development is exceeding expectations. That mentioned, traders should not anticipate this example to proceed without end. The reminiscence {hardware} business is thought for growth and bust cycles, partly due to how commoditized its merchandise are.
A reminiscence chip created by Micron just isn’t essentially totally different from a chip created by SK Hynix or Samsung — two of its chief rivals. Furthermore, when demand rises and reminiscence producers can increase costs, all of them sometimes race to broaden manufacturing capability — setting the stage for an eventual provide glut and collapsing margins when the brand new foundries are on-line and the demand state of affairs reverses. Related tales performed out in earlier reminiscence demand cycles, such because the Home windows PC growth within the mid-Nineties and the smartphone growth within the 2010s.
Picture supply: Getty Photographs.
Sadly for traders, Micron and its friends appear to be setting the stage for the same glut to happen sooner or later. In June 2025, the corporate introduced plans to speculate $200 billion into increasing its semiconductor manufacturing capacities and its R&D operations within the U.S.
Whereas this capital expenditure will likely be unfold over a number of years, it can introduce considerably extra high-bandwidth reminiscence to the market over time. As Micron’s rivals make their very own investments in new capability, ultimately, provide will catch as much as and exceed demand, which is able to naturally lower into chipmakers’ pricing energy and put stress on their margins.
There may be additionally the danger that the generative AI sector as an entire is in a bubble. And even when the expertise seems to be extraordinarily helpful, that does not essentially imply the present ranges of information middle spending are sustainable. The state of affairs seems to be paying homage to the dot-com bubble in 2000, the place web investments took for much longer to repay than the market anticipated.
Micron inventory is comparatively low cost for a purpose
With a ahead price-to-earnings (P/E) ratio of simply 7.8, Micron inventory is considerably cheaper than the S&P 500‘s common of twenty-two. And it is a good signal as a result of it means that traders are already pricing within the threat of a future reminiscence demand slowdown. That mentioned, whereas Micron Know-how’s inventory seems to be unlikely to crash anytime quickly, its days of multibagger development are most likely coming to an finish.
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Will Ebiefung has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Micron Know-how. The Motley Idiot has a disclosure coverage.
