One of the hottest artificial intelligence (AI) stocks to start 2026 has been Micron Technology (MU +4.13%). After being up 239% in 2025, the stock is already up a quick 50% in 2026.
Despite the huge recent gains, though, the stock is not currently expensive based on traditional earnings valuations. The stock trades at a forward price-to-earnings (P/E) ratio of just 12.5 times the fiscal 2026 analyst consensus for the fiscal year ending August 2026 and 9.5 times fiscal 2027 analyst estimates.
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Micron is a memory leader
Micron is one of the big three DRAM (dynamic random access memory) makers, along with Korean companies SK Hynix and Samsung. About 80% of its revenue is derived from DRAM production, while the rest is largely NAND (flash memory). Both memory markets are currently in short supply, driven by the high demand for AI data centers.
The DRAM market is being fueled by demand for high-bandwidth memory (HBM), which is a specialized form of DRAM. In order for graphics processing units (GPUs) and other AI chips to perform at their best, they need to be packaged with HBM. HBM sits next to AI chips, letting them quickly offload and retrieve data to optimize their processing capabilities. Given the huge and growing demand for AI chips, the HBM market, not surprisingly, has also seen demand skyrocket.
However, there is an additional reason why DRAM is in short supply. Manufacturing HBM is much more complex and requires upwards of three times the wafer capacity as run-of-the-mill DRAM, because these chips are much bigger. Since HBM chips are physically larger, fewer of them can fit on a single wafer. Meanwhile, with HBM being in such demand and having strong unit economics, it is crowding out regular DRAM production. This is leading all DRAM prices to surge.
The NAND side of the market, meanwhile, is also in short supply. The flash memory market crashed coming out of the pandemic, as the pull-through in demand for electronics left the market severely oversupplied. The resulting inventory glut caused NAND prices to sink to levels where companies had to sell flash memory at prices of less than the cost to make it, resulting in negative gross margins. As a result, the big memory makers slashed NAND production and turned their attention to DRAM.
However, shortly after this, AI data centers started needing huge, solid-state drives containing flash memory to store training data. This has led to a surge in NAND prices, as the big memory makers have been reluctant to increase their flash memory production. Instead, they're focusing on HBM, which comes with both strong unit economics and long-term commitments.
NASDAQ: MU
Key Data Points
Is Micron stock a buy?
The memory makers have long been subject to boom-and-bust cycles, which is one of the big reasons why Micron's stock still trades at such a reasonable forward P/E multiple. However, with the memory companies able to lock in long-term commitments for HBM, this market is starting to look much less like another DRAM cyclical upswing and more like a structural tailwind. AI infrastructure spending is surging, and right now, there's nothing to suggest it'll slow anytime in the foreseeable future.
Micron has been one of the biggest beneficiaries of this trend. Its revenue is surging, and more importantly, its gross margins and free cash flow have ballooned. Last quarter, Micron's revenue climbed 57%, while its gross margins soared from 38.4% a year ago to 56%. It generated $3.9 billion in free cash flow.
The company's HBM capacity is sold out for this year, and it's building new capacity to meet the 40% increase in annual demand that it expects through 2028. It's also in discussions for multi-year commitments for its HBM production.
Given the tailwinds in the industry and this looking more like a structural AI infrastructure story, Micron's stock still looks like a top AI stock to own.
