Is Micron The Best Bargain AI Stock? 40% Growth At 10x PE
Micron Technology stock (NASDQ:MU) gained about 6% over the last month and remains up by almost 40% year-to-date. The company recently boosted its Q4 FY’25 outlook, anticipating revenue of $11.2 billion at the mid-point, up from its prior forecast of $10.7 billion, with adjusted earnings anticipated at a midpoint of $2.85 up from $2.50. So, what’s fueling this surge for Micron? It’s all about that AI infrastructure demand, which is driving sales of high-bandwidth memory products, also known as HBM.
Now, even after the big rally, Micron stock trades at just about 15x estimated 2025 earnings and a mere 9.5x FY’26 earnings (fiscal years end August). What’s more. Projected growth is strong. Micron Revenues are on track to rise 47% this fiscal, per consensus estimates, while growth is pegged at roughly 30% for FY’26. Does this make Micron stock a clear buy? The question boils down to whether Micron is shifting from a traditional cyclical memory play to a more secular AI growth story. Should you Buy or fear Micron stock
HBM and the AI Build Out
Over Q3 FY’25, HBM revenue rose nearly 50% sequentially, pushing the business to a $6 billion annualized run rate. Demand is coming from the rapid adoption of generative AI, which requires high-performance memory to operate at scale. While DRAM delivers capacity, HBM provides the bandwidth and low latency needed for large language models. Micron is a key supplier for Nvidia’s latest Blackwell GB200 platform, as well as AMD’s Instinct MI350 series GPUs. Memory content per AI system is also rising. For instance, Nvidia’s latest Blackwell systems carry 33% more memory per node compared to previous generation chips. Moreover, as models expand from text-only to multimodal formats, including video and speech, memory intensity. With AI expected be widely adopted across the economy, there could be a long growth trajectory for Micron. Separately, Is Chrome Worth $1 Trillion For Google?
But supply won’t keep up so easily. HBM is more complex to manufacture than traditional DRAM, and HBM supply remains limited. Producing HBM is wafer-intensive – it takes about three times as many wafers as standard DRAM to produce the same number of bits, due to its lower bit density and complex 3D stacking. That creates a bottleneck. While Micron has been scaling its HBM memory production capacity, it is sold out of HBM output in calendar 2025 and notes that it is seeing strong demand for HBM supply in 2026. Micron aims to expand its HBM market share significantly, targeting about 20-25% of the HBM segment by late 2025. Beyond HBM, Micron is the only volume producer of low-power DRAM for data centers, an advantage as AI workloads make efficiency increasingly critical. Data center revenue more than doubled year-over-year last quarter, hitting a new record.
Gross margin for Q3 came in at 39.0%, up 110 basis points sequentially. Micron now expects Q4 adjusted gross margin of 44.5%, driven largely by the mix shift toward HBM. The capacity-intensive nature of HBM also limits standard DRAM output, which may be supporting DRAM pricing and overall margins for the company.
Does HBM Shift Micron From Cyclical To Secular Play?
So let’s come back to Micron’s valuation. Trading at under 10x FY’26 earnings, with close to 30% growth projected for the year, the stock looks cheap. But memory stocks are typically very cyclical, moving between boom and bust cycles. The NAND market for instance has been witnessing a lull, led by subdued demand from the smartphone and PC space, while the DRAM markets are finally seeing an upcycle after a rough 2024. This cyclical nature means that memory stocks often trades at low earnings multiples when earnings are at a near-term high and this might well be the case for Micron at the moment. This is because markets anticipate that earnings will eventually decline in the coming periods as the cycle turns.
However, does HBM change the math for MU stock? We think that Micron’s pivot toward high-bandwidth memory (HBM) can reduce, but will not erase, the inherent cyclicality of its business. The traditional DRAM and NAND markets are likely to remain prone to sharp supply-demand swings and pricing volatility. That said, HBM’s demand appears to be driven by multi-year AI infrastructure build outs and long-term supply agreements with partners like Nvidia. This HBM businesses higher margins, stronger pricing power, and deeper order visibility provide a buffer against the typical boom-bust cycles of commodity memory. Still, as industry capacity eventually expands and AI demand growth normalizes, cyclical pressures could re-emerge, meaning the pivot is more likely to ease cyclicality a bit, rather than eliminate it entirely. In recent quarters, HBM has accounted for just about 15% of Micron’s total revenue, although this number will rise going forward, traditional memory products will likely still dominate the company’s sales mix.
The relatively high valuation of MU stock limits its upside potential in the near-to-mid term. As an alternative, the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.
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