Even among artificial intelligence stocks, it's hard to find companies that can match the recent performance of Micron Technology (MU 6.74%). The longtime provider of memory semiconductor chips has seen its stock quadruple over the past year, soaring to record levels. Record demand for memory chips from AI hyperscalers seeking to build out data center capacity has been the primary fuel for Micron's ascent, but other factors have played to Micron's advantage as well. The question now is how long the good times can last and what might happen when the music stops.
Over the past couple of days, the two previous articles in this three-part series on Micron for the Voyager Portfolio have given investors context on the chipmaker's history and its recent financial performance. This final article closes with a look at whether Micron's growth is sustainable and what could happen with its stock price in the future.
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Why this time might be different for Micron
In the past, when Micron has enjoyed strong demand that has allowed it to raise prices, favorable conditions prompted it to build out greater production capacity to take maximum short-term advantage. Once that added capacity came online, however, it disrupted the supply/demand balance. Moreover, when demand slowed due to cyclical factors facing makers of hardware and electronic equipment, Micron and its industry peers found themselves with overcapacity and a glut of memory chips, sending prices plunging.
Micron CEO Sanjay Mehrotra, however, believes this particular cycle is different because of the strength of the end markets that it's serving. In broad terms, Mehrotra sees memory as having become essential to the pseudo-cognitive functions of AI, and that makes memory less like a regular component and more like a strategic asset that gives those who possess it advantages over those who don't. Without adequate memory, features like real-time insights from AI models become inaccessible.
Wins in all corners
Just about all of Micron's end markets are aligning in its favor. Data center buildouts continue to accelerate, and the company expects a multi-year effort that will allow Micron the chance to ramp up production of its high bandwidth, high-capacity server memory solutions. Solid state drives made specifically for data center use will also be a winner from these trends.
Meanwhile, in the PC world, the end of life for Windows 10 is prompting an upgrade cycle, as is the advent of AI-focused PC hardware. Although smartphone sales are rising less quickly, there's still demand for greater memory as mobile devices incorporate more AI features. And in the automotive and industrial areas, growing capacity for autonomous operation is making memory increasingly important as well.
Is Micron setting the bar too high?
In response to the faster buildout plans it's seeing from its customers, Micron now believes that the primary constraint on 2026 growth will be its ability to provide supply, with shipments expected to rise roughly 20%. To grow more quickly in the future, Micron is boosting its capital expenditures to $20 billion for the year. New facilities are likely to come online in the U.S. in 2027, 2028, and 2030, and international facilities will add capacity as well.
NASDAQ: MU
Key Data Points
Yet the longer-term threat is that investors have let Micron's stock price get ahead of its true prospects for sustainable growth. It's almost certain that trailing earnings multiples in the mid-30s will fall as Micron boosts production. But what has happened in the past is that the threat of imminent supply gluts has led to greater multiple contraction than investors anticipated, causing sharp share-price declines.
I see that as a very real threat, regardless of whether it takes more or less time to play out than in past cycles. That's why Micron won't be part of the Voyager Portfolio, and tech investors should use caution in adding to positions at current levels.
