Micron Technology (MU 6.68%) is experiencing a significant surge in its memory business, which has driven its stock price up 85% over the last three months.
Micron is a leading supplier of memory chips, including dynamic random access memory (DRAM), that is used in computers, phones, and increasingly data centers. DRAM is basically a commodity product and is highly competitive. The company's recent growth would suggest an opportunity for investors, but it depends on whether data center demand can drive sustainable revenue growth over the long term.
Image source: Micron Technology.
Data center demand is sending memory prices soaring
Multiple companies manufacture memory chips, but Micron is benefiting from a shortage of memory chips relative to the demand from data centers. Its fiscal 2025 revenue jumped 49%. The fiscal year ended Aug. 28.
Analysts expect the good times to continue, driven by a significant increase in DRAM selling prices. Higher pricing has juiced margins, sending adjusted earnings per share to $8.29 in fiscal 2025, with analysts expecting another solid quarter of profitable growth for fiscal Q1 2026.
NASDAQ: MU
Key Data Points
The stock appears to be undervalued, trading at around 15 times fiscal 2026 earnings estimates. However, this is historically a fair valuation for Micron, considering the fluctuations in revenue due to competition and changes in DRAM prices.
The historical fluctuations in demand and supply in the memory chip market make Micron a challenging stock to analyze. Still, management expects the limited supply of DRAM to continue next year, signaling that it should deliver more growth in revenue and earnings. As long as these conditions persist, the stock remains a solid buy.
