Amid a semiconductor chip shortage, Micron Technology (MU 0.10%) stock has experienced one of its best runs in many years. Its stock price has almost returned to its all-time high of $97.50 per share, a point it has not achieved since the height of the dot-com boom in 2000. Given its history, investors should question whether Micron is in the midst of a long-term boom, or if the run is merely a reaction to the chip shortage.

Where Micron stands

Micron is one of a select group of stocks that have been helped by the pandemic. Chip foundries were temporarily shuttered in 2020 even as the increased need for remote work led to a demand surge in chips. To meet this market need, the company has taken its production to full capacity amid an environment of rising memory prices.

Micron remains one of the major players in the NAND, or flash, memory market. According to TrendForce, Micron is the third-largest player in the NAND market, with a market share of about 14%.

Technician placing memory chips inside of a PC.

Image source: Getty Images.

Still, its most impactful competitive advantage lies in its position in the DRAM market. The company is one of only three producers of DRAM chips, which made up 68% of company revenue in 2020. TrendForce reports that Micron held 23% of the DRAM market as of the end of 2020. And the fact that it became one of the top 20 patent registrants in 2020 points to a commitment to maintain and deepen its edge.

Micron also continues to benefit from a much larger trend. In past years, it made memory primarily for PCs. However, its memory business has recently experienced an exponential demand surge as artificial intelligence, virtual reality, data centers, smartphones, and other devices come to rely on its chips.

Micron's financials

This secular demand increase has helped make downturns less extreme. In the more distant past, slumps in the chip market led to losses, such as the one suffered in fiscal 2016. But the company kept itself profitable even amid falling earnings in 2019 and 2020.

Now rising demand and shortages have had positive effects on financials. For the first six months of fiscal 2021, revenue increased by about 21% compared to the first six months of fiscal 2020. Over the same period, net income surged 54% as operating expenses experienced only a 5% increase.

Micron only offered financial projections for the upcoming quarter. Still, the $6.9 billion to $7.3 billion of revenue predicted dramatically exceeds the $5.4 billion the company brought in during the same quarter in 2020. Moreover, the company raised its sales forecast for both DRAM and NAND memory for all of fiscal 2021. It predicts DRAM sales will experience a 20% increase from last year's levels, with NAND sales to grow in the low to mid-30% range during the same period.

Despite positive earnings, Micron reported negative free cash flow of $642 million. This happened because it invested almost $5.8 billion in additional property, plants, and equipment, an understandable move given the rising chip demand. Moreover, since the company holds about $6.5 billion in cash, the $42 million quarterly interest expenses and the $6.6 billion in combined current and long-term debt should not concern stockholders.

Additionally, the stock has more than doubled over the last 12 months. Micron stock has a long history of moving with memory prices. For this reason, its recent increase should not come as a surprise.

MU Chart

MU data by YCharts

However, that trend can also apply in times of low demand. Shares fell to the $10-per-share range during the 2016 downturn. Conditions have improved as the need for memory has expanded beyond PCs, however. Consequently, Micron did not fall far below $30 per share at the height of the downturn that began in 2018. Nonetheless, the stock's sensitivity to memory prices remains, and shareholders should stay aware of that fact as Micron nears record highs.

Should I buy Micron?

Many assume that Micron stock is a buy due to the chip shortage.

Still, investors shouldn't forget that Micron stock remains a proxy for memory prices. Micron released a sales outlook for all of 2021 but did not provide a financial outlook beyond the upcoming quarter. This may point to this uncertainty regarding the price of memory.

Moreover, when chip demand finally falls, Micron stock price will likely experience a massive drop. This should give long-term investors second thoughts about buying this chip stock at current levels.