Under the Spotlight: Micron Technology ($MU)

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Last year, it was a shortage of GPUs that drove record returns in companies like Nvidia ($NVDA), AMD ($AMD) and Broadcom ($AVGO). Now, another constraint is taking centre stage. Memory is becoming one of the most limited resources in the AI race.

In case you missed last week’s Wrap, AI is eating up the world’s supply of memory chips. The build-out of AI infrastructure by Silicon Valley hyperscalers is consuming huge amounts of high-bandwidth memory (HBM). That’s not just affecting the cost of your ChatGPT subscription – it’s pushing up prices across everyday electronics, from gaming consoles to smartphones and PCs. 

That’s not great news for consumers. But for memory chip giants like Micron Technology ($MU), it’s a problem the market is more than happy to reward.

In the last six months, $MU shares are up an incredible 256%. As we move into the new year, that reality has started to sink in. Analyst price targets are climbing and the firm’s share price is already up over 20%. 

Choke point

With data centres racing to scale AI models, we now have a global memory squeeze that Micron has described as ‘unprecedented.’ 

Memory chip prices are expected to jump 50% between January and March compared with the previous quarter, according to Counterpoint. And that pressure is flowing straight into consumer electronics as memory makers prioritise high-margin data center components over conventional chips used in everyday devices.

Global smartphone shipments are expected to shrink 2.1% in 2026, while the PC market is forecast to fall about 5%, according to IDC. Gaming console sales are expected to decline by 4.4%, according to TrendForce.

The situation is unlikely to ease anytime soon. Micron CEO Sanjay Mehrotra said supply would ‘remain substantially short of the demand for the foreseeable future.’ 

In December, Micron announced it would exit its consumer business, Crucial, to sharpen its focus on AI demand. 

While the business world scrambles to piece together what it all means, it’s clear these moves only strengthen Micron’s pricing power, supporting higher margins in its most valuable products.

Making memory

Micron is one of the world’s biggest memory and storage chipmakers, alongside Samsung and SK Hynix. These chips store and move data so computers, phones and AI systems can run quickly and smoothly.

Its largest business is DRAM – short-term working memory – which makes up about 79% of Micron’s total revenue. It also produces NAND, which is long-term storage used in solid-state drives.

But the fastest-growing opportunity is high-bandwidth memory, or HBM, a specialised form of DRAM used in advanced AI systems. HBM sits close to AI processors and enables extremely fast data transfer. 

In Q1 2026, Micron’s DRAM revenue rose 69% YoY to US$10.8B. Its Cloud Memory segment, which covers memory products sold to AI and cloud data centers, doubled year on year to US$5.28B.

That growth isn’t expected to slow. Micron has forecast the HBM market to jump to US$100B by 2028, from US$35B last year. 

Winning numbers

Micron’s latest record-breaking earnings show just how sharply the cycle has turned. Morgan Stanley called it the biggest revenue and profit upside surprise in U.S. semiconductor history, after Nvidia.

Revenue in fiscal Q1 2026 jumped 57% year on year to US$13.64B and 21% from the last quarter, with the biggest growth coming from its Cloud Business segment. Net income rose to US$5.48B and diluted earnings per share came in at US$4.78. 

The cash flow tells the same story. Generating US$8.41B in operating cash in a single quarter, while still spending US$4.5B on new capacity, shows Micron can fund its AI expansion internally rather than leaning on debt. A 56% gross margin underscores how far pricing has moved in Micron’s favour.

The outlook is even stronger. Micron expects Q2 2026 revenue of US$18.7B, with around 68% non-GAAP gross margin and adjusted EPS of US$8.42. 

Spending big

With Micron running at maximum capacity, it’s investing heavily to increase production and capitalise on this enormous opportunity.

Last Saturday, it announced its intention to buy a Taiwanese chip-making site for US$1.8B. Once operational, that additional capacity would be equivalent to around 10% of Micron’s current output.

And it’s already broken ground on its megafab in Onondaga County, New York, part of a planned US$100 billion complex that could eventually become the largest semiconductor memory facility in the U.S.

This expansion will strengthen Micron’s ability to meet AI-driven demand, but it also raises the stakes. Memory is a cyclical industry. Unlike GPUs or TPUs, one memory chip is largely interchangeable with another. Like a commodity such as oil, pricing depends heavily on the output decisions of a small number of manufacturers, where shortages and over supply are common.

Micron’s projected capex for fiscal 2026 is around US$20B, up from US$13.8B in fiscal 2025. The pay-offs from that spend will depend on demand staying strong and pricing holding up as new supply comes online.

Buy or sell?

Micron is in one of the strongest positions in its history. AI is driving demand for a product few can supply, expanding margins and lifting cash flow.

Analysts are taking notice. TD Cowen this week lifted its price target from US$450 per share, up from its previous US$300.  Barclays also raised its target from US$275.00 to US$450.00. 

Morgan Stanley increased its price targets for both Micron and Sandisk ($SNDK) and named Micron its top pick, citing ‘intensifying shortages’ of memory. 

It also looks pretty cheap compared to its tech peers. It’s currently trading at around 10 times forward earnings. By comparison, the Mag7 stocks typically trade on P/E ratios of around 20-30.

It may look like a no-brainer, but there are risks. A rapid supply ramp across the industry could pressure prices and heavy capital spending can magnify the downside if the cycle turns.

If AI infrastructure spending stays relentless, Micron has a clear runway for higher sales and fatter margins. If supply catches up faster than expected, the cycle will reassert itself. Either way, this is now a stock investors cannot ignore.

This is not financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. The author of this article and other employees of Stakeshop Pty Ltd may hold positions or have financial interests in the company (or companies) discussed above. As always, do your own research and consider seeking financial, legal and taxation advice before investing.