Micron's AI Hype Masks Renegotiable Contracts and HBM4 Validation Risks

What happened

Micron Technology's stock has rallied 50% in 2026, driven by AI-fueled demand and news that its HBM production is sold out for the year with long-term commitments. The DeepValue report reveals that at $428, the stock already embeds the crowded 'AI memory bottleneck' thesis, warranting a WAIT rating with an attractive entry near $320. Despite strong near-term momentum, filings emphasize that customer contracts are renegotiable and lack fixed pricing, exposing Micron to potential price resets as HBM4 validation completes by 2Q26. Supply shortages in DRAM and NAND are temporary, and multi-sourcing from Samsung and SK Hynix could shift bargaining power to buyers, threatening gross margins. Investors face a critical 3-6 month window where HBM4 validation progress and pricing stability must confirm the bullish narrative to sustain current valuations.

Implication

The stock's surge reflects AI optimism but overlooks fundamental vulnerabilities: Micron's contracts allow periodic renegotiation, and HBM4 validation by mid-2026 increases buyer leverage, likely pressuring prices. At a P/E of 40.4, valuation offers no margin of safety, with downside scenarios projecting $260 if pricing resets occur amid industry oversupply. Heavy capex dependence on conditional government incentives adds cash flow risk, while insider sales in early 2026 signal potential overvaluation. Monitoring HBM4 validation completion and 2026 price agreements through May-August 2026 is essential to avoid a drawdown. A disciplined approach favors waiting for confirmation of sustained margins and reduced crowdedness before committing capital.

Thesis delta

The news reinforces near-term demand strength but does not alter the core thesis; Micron remains a WAIT due to embedded pricing risks and high valuation. Any shift would require evidence that HBM4 validation delays or price cuts are avoided, which is not yet confirmed. Thus, the thesis stays unchanged: wait for a better entry until HBM4 progress and pricing resilience are demonstrable.