Micron Technology (MU +2.42%) stock closed at $958.73 on Monday, Aug. 31, which was 21% below its June all-time high. But just to keep things in perspective, the stock is still sitting on an eye-popping one-year gain of 680%.
Micron supplies some of the world's best high-bandwidth memory (HBM) for data centers, a critical component in the artificial intelligence (AI) hardware stack. Demand is currently through the roof and supply remains tight, giving the company an unprecedented ability to dictate prices.
However, the supply-demand imbalance could resolve during the next year or two, potentially hurting Micron's financial performance. Therefore, although its stock is trading at a very attractive valuation, it isn't a straightforward buy right now. Here's why I'm steering clear despite the recent dip.
Image source: The Motley Fool.
Why Micron stock is pulling back
According to Nvidia, the five largest hyperscale companies (which includes the likes of Microsoft and Amazon), will spend nearly $800 billion combined on AI data center infrastructure during 2026, with a substantial chunk of that money going toward chips and components. Nvidia says that spending figure could top $1.3 trillion in 2027.
Those companies have to earn a return on all of that spending; otherwise, it won't make economic sense. Some of them will make money by renting computing capacity to other businesses for a fee, whereas others will charge for the use of their AI models and software applications. But making money isn't easy with hardware costs surging; a recent report by Bloomberg suggests Nvidia has informed customers of a 15% price increase, partly because of rising HBM prices.
To recoup some of the climbing costs, companies like Microsoft and Anthropic recently implemented passive price increases for the use of their AI models and software, which has forced some organizations to rethink their spending. Uber Technologies, Walmart, AT&T, and Amazon are just some of the companies that have implemented AI usage caps on their employees to prevent budget blowouts.
According to a recent survey by UBS Group, about 60% of businesses are now routing tasks to cheaper, more efficient AI models to help reduce usage costs. These models typically consume less computing power, which might be bad news for semiconductor demand.
To make matters worse, lawmakers in more than a dozen U.S. states have introduced legislation to temporarily ban the construction of new data centers while they weigh the social, economic, and environmental impacts. This will be a problem for many planned infrastructure projects, and the effects could flow through to Micron and other chip makers in the form of lower sales.
Micron's revenue continues to skyrocket
The aforementioned AI headwinds haven't shown up in Micron's financial results. The company generated a record $41.4 billion in total revenue during its fiscal 2026 third quarter (ended May 28), a staggering 346% increase from the year-ago period. All four segments of its business produced triple-digit percentage growth, thanks to AI-related memory demand for data centers, computers, smartphones, and even cars.
The supply-demand imbalance in the memory market is giving Micron an unprecedented ability to dictate prices, which is a big reason for its rapid revenue growth. That is also boosting the company's profit margins, which is why its third-quarter earnings soared by an eye-popping 1,368% to $24.67 per share.
Management's forecast points to another set of blockbuster results in the fourth quarter, which just ended on Aug. 31. The company is expected to have $50 billion in sales and earnings of $30.73 per share. The final numbers will be revealed at the end of September.
Why I'm not buying Micron stock on the dip
Micron stock looks like an absolute bargain right now. Based on the company's trailing 12-month earnings of $44.23 per share, its stock is trading at a price-to-earnings (P/E) ratio of just 21, making it cheaper than both the S&P 500 and Nasdaq-100 indexes, which have P/E ratios of 24.5 and 34.3, respectively.
Plus, if Micron's earnings rise to $155.03 per share in fiscal 2027 like Wall Street expects (according to Yahoo! Finance), then its stock has an even more attractive forward P/E ratio of just 6.
NASDAQ: MU
Key Data Points
Why would a company growing at Micron's pace be trading at a discount to the broader market? Simply put, I think Wall Street knows the company's earnings will eventually crash back down to Earth. If a slowdown in demand doesn't cause it, then an increase in supply might, because every memory company is racing to build more manufacturing capacity right now. During the next few years, higher supply levels will erode Micron's ability to dictate prices, so the company probably won't be able to maintain its current level of earnings.
As a result, if we look a few years into the future, Micron stock might be more expensive than it currently appears. That's why I don't plan to buy the recent dip.
