Micron Technology (MU 3.21%) has been one of the hottest stocks over the last six months. The memory chipmaker is benefiting from significant pricing power as demand for its chips increased substantially faster than the market's supply. Its chips are a key component in packaging GPUs, which are essential infrastructure for large language model training and inference.
With the share price more than quadrupling at some points over the last six months (it's currently up 261%), Micron now has a market cap approaching $500 billion. Only about 20 publicly traded stocks are worth more. But I expect one artificial intelligence (AI) stock to surpass Micron's value by the end of next year. Here's why I think it's a better investment opportunity right now.
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Can Micron's strength last forever?
Micron is one of the leading manufacturers of DRAM chips, which form the foundation of high-bandwidth memory (HBM) chips. HBM has seen an increase in demand over the past year because it has enabled faster and more efficient AI training as developers increase the size and complexity of their models.
But Micron can't just flip a switch and supply more chips. Building manufacturing capacity takes months, if not years. During its first-quarter earnings update, management said it had already contracted out its entire 2026 supply.
With tight supply and voracious demand, Micron has been able to raise the price for its chips. The company's gross margin climbed to 57% in its fiscal first quarter, up from 46% in the fourth quarter and 40% in the first quarter of 2025. Those numbers should continue to improve.
However, it isn't the only memory chipmaker, and its product isn't highly differentiated. A GPU maker could opt for a competitor's chips without much change to its design. As such, Micron's ability to maintain its pricing power is heavily dependent on the entire industry's manufacturing build-out.
NASDAQ: MU
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Management gave investors a positive outlook for the industry, though. "We expect tightness to persist through and beyond calendar 2026," it wrote in its first-quarter earnings release.
But as supply and demand move closer to equilibrium, the pricing power Micron currently exhibits will dissipate. Its margins will compress, and the cyclical stock will see a drop in earnings.
At this rate, that might not happen until 2028. But with stock prices based on future expectations, it could mean the shares don't move much higher from here without another catalyst to increase demand beyond projected supply well into the future. The semiconductor stock might look attractive at 13 times earnings expectations, but investors need to keep in mind how cyclical the company's earnings are.
The company that could surpass Micron's value by the end of next year, if not sooner
Micron now has a market cap close to a half-trillion dollars, but another AI giant has seen its stock price stagnate over the past few months, with a market value of around $400 billion. Alibaba Group (BABA 1.60%), the Chinese e-commerce giant, continues to see exceptional growth for its cloud computing business, but its recent e-commerce efforts have weighed on its overall earnings.
Alibaba is investing in what it calls "quick commerce," which aims to deliver orders within an hour of purchase. It's a rapidly growing market in China fueled by the growth of Meituan, ByteDance's Douyin (the Chinese version of TikTok), and more traditional e-commerce competitors.
Scaling up the product has severely cut into the profitability of the e-commerce business, since it lacked route density and order volume. But Alibaba showed significant improvement in its unit economics for quick commerce last quarter, thanks to a 60% year-over-year increase in sales. That indicates it's close to turning the profit drain into a profit generator.
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In the meantime, the company is investing heavily in its cloud computing capacity. Capital expenditures reached $4.4 billion in the third quarter, up from $2.5 billion in the third quarter last year. That has helped support continued growth in the cloud computing segment, up 34% year over year. Earnings before interest, taxes, depreciation, and amortization climbed slightly faster, up 35% in the quarter.
With the improving economics of quick commerce and the continued strength of its cloud computing business, Alibaba is poised for strong earnings growth over the next few years. Analysts see earnings per share climbing 40% next year, rebounding from the impact of quick commerce. It should show steady profitability improvement while growing its top line by double digits, making its forward P/E of 26 look like a great value.
