Micron's Supply Squeeze Echoed in Media, Yet Valuation Risks Loom

What happened

The Motley Fool article highlights the current short supply in NAND and DRAM markets, with prices skyrocketing, reinforcing Micron's position in an AI-driven upcycle. This aligns with the DeepValue report's acknowledgment that AI demand has created tight market conditions expected to persist through 2026. However, the report cautions that Micron's stock, at $437.80 with a P/E of 41.36, prices in a sustained 'golden era' of high margins, ignoring cyclical risks. DeepValue emphasizes vulnerabilities such as dependency on hyperscaler AI capex, heavy capital expenditures reliant on subsidies, and potential oversupply from competitors ramping capacity. While the media narrative boosts short-term optimism, the underlying valuation and structural cyclicality suggest investors should remain wary.

Implication

The article's confirmation of supply tightness supports near-term earnings but does not justify Micron's premium valuation, which assumes multi-year scarcity. Micron's heavy capex plans, while subsidized, increase exposure to a downturn if AI demand softens or competitors overbuild. Dependency on a few large hyperscaler customers makes revenue vulnerable to shifts in AI infrastructure spending, a key risk noted in filings. Competitors like Samsung and SK hynix are ramping HBM and DRAM capacity, which could lead to oversupply and margin compression post-2026, eroding current pricing power. Therefore, investors should wait for a more attractive entry point around $320 or evidence of sustained high margins beyond 2026 before considering new purchases.

Thesis delta

The article reinforces the near-term bullish narrative on supply tightness but does not alter the core investment thesis that Micron is overvalued given its cyclical nature and lack of contractual earnings visibility. It highlights the market's focus on current scarcity while overlooking long-term risks such as capex overhang and potential demand normalization, which are critical in the DeepValue analysis. No significant shift is warranted; the DeepValue sell caution remains valid as the optimism is already priced into the stock at elevated multiples.