Micron's AI-Driven Stock Surge Highlights Supercycle Optimism Amid Deep Valuation Concerns

What happened

Micron Technology's stock soared 21% last month, driven by AI-fueled demand that pushed quarterly revenue up 56.6% year over year, reflecting the intense shortage in HBM and server DRAM markets. This performance reinforces the narrative of an AI memory supercycle, where Micron has reported record margins and guided for continued strength through 2026. However, the DeepValue report warns that at $340, the stock is priced for perfection, trading at elevated multiples like 32x P/E that assume sustained super-cycle earnings as the new normal. Key risks include aggressive capacity additions by competitors SK hynix and Samsung into late 2026/2027, which could lead to oversupply and price erosion once the current tightness eases. Despite the positive news, the fundamental concern is that Micron's valuation lacks a margin of safety, with asymmetric downside if AI capex slows or the cycle turns earlier than expected.

Implication

The current price discounts a prolonged AI supercycle through 2027, but historical memory market cycles suggest a high probability of correction as new capacity comes online. Micron's heavy capex and concentration on hyperscaler demand increase vulnerability to any slowdown in AI infrastructure spending, which could compress margins rapidly. With competitors ramping capacity, any dip in demand could quickly flip the market from shortage to glut, undermining the supercycle thesis. Investors should closely monitor DRAM/HBM pricing trends, hyperscaler capex guidance, and Micron's HBM market share gains for early warning signs. Given the potential sell rating and base case value of $300, current holders might consider profit-taking, while new buyers should wait for a more attractive entry point near $230 to mitigate downside risk.

Thesis delta

The Motley Fool article corroborates the near-term AI-driven revenue surge that underpins the supercycle thesis, but it does not alter the core concerns about valuation and cyclical risks highlighted in the DeepValue report. The stock's recent appreciation has further extended its premium over mid-cycle values, reinforcing the assessment that the upside is limited and downside risks are elevated. Investors should view the positive news as already priced in, with the focus remaining on the durability of demand against impending supply increases and competitive pressures.