Can AI-Driven DRAM Demand Sustain Micron's Revenue Upswing?

What happened

Micron Technology is riding an AI-fueled DRAM boom, with recent articles highlighting higher memory content and pricing gains driving revenue growth. This aligns with the DeepValue report's findings of record FQ1-26 results, including $13.6 billion in revenue and $7.6 billion in gross profit, fueled by tight HBM and DRAM supply. However, the stock has surged 267% over 12 months to around $330, trading at elevated multiples like 31x trailing P/E, which discounts a prolonged AI supercycle. The report notes a crowded market sentiment with a narrative shift to an AI memory supercycle, but memory remains highly cyclical, posing risks from competitor capacity additions and potential AI capex slowdowns. Consequently, the report rates Micron as a 'Potential Sell' at current levels, advising investors to wait for a pullback or de-risked expectations.

Implication

The AI-driven DRAM demand supports near-term revenue, but investors must critically assess hyperscaler capex trends and competitor capacity ramps that could erode pricing power. Micron's elevated valuation leaves no margin of safety, with earnings likely priced for perfection amidst a history of violent downcycles. High fixed costs from U.S. fab investments increase financial vulnerability if the cycle turns, compounding risks from a crowded long trade. Monitoring key indicators like HBM pricing agreements and CHIPS Act funding is essential to gauge sustainability. Thus, trimming exposure or waiting for a pullback to the report's base case of $320 is prudent, aligning with a risk-aware approach.

Thesis delta

The news article echoes the bullish AI narrative, but the DeepValue report emphasizes that this optimism is already fully priced in, with valuation stretched and cyclical risks heightened. No substantive shift in the thesis is needed; it remains that Micron is overvalued, and investors should maintain a cautious stance, prioritizing entry points below $260 for improved risk-reward.