Micron's AI Chip Growth Skyrockets: Is It Still a Buy?

Micron's AI Chip Growth Skyrockets

Micron Technology, a leading player in the memory chip industry, has seen its stock price soar by an astonishing 140% in 2025. This surge is primarily driven by the skyrocketing demand for its high-bandwidth memory (HBM) chips, which are critical for powering advanced AI applications. Despite this remarkable growth, Micron's valuation remains attractive, positioning it as a potentially undervalued investment opportunity in the tech sector.

The Role of AI in Micron's Success

The ongoing AI revolution has created an unprecedented demand for specialized memory chips like HBM. These chips are essential for processing the vast amounts of data required for AI applications, from machine learning algorithms to complex data analysis. Micron's ability to capitalize on this demand has been a key factor in its recent success. The company reported a 49% increase in revenue, reaching $37.4 billion in fiscal 2025, largely due to improved pricing and strong demand for its memory chips.

Micron's adjusted earnings per share also saw a significant jump, rising to $8.29 from $1.30 the previous year. This impressive financial performance underscores the company's profitability and its strategic positioning in the AI market. However, Micron is not without challenges. The company is exiting the data center business in China due to a ban imposed by Beijing in 2023. This move is expected to impact Micron's revenue, as China accounted for 7% of its top line in the previous fiscal year, generating $2.6 billion.

Navigating the China Market Exit

While the exit from the Chinese market presents a short-term setback, Micron is taking strategic steps to mitigate the impact. The company plans to redirect its data center memory capacity to other markets and will continue serving Chinese customers operating outside mainland China, including major clients like Lenovo. Additionally, Micron will maintain its presence in China by selling chips for automotive, smartphone, and PC applications. This strategic shift aims to leverage growth opportunities in other regions while minimizing the impact of the Chinese ban.

Growth Opportunities in the AI Sector

Micron is actively expanding its manufacturing capacity to meet the growing demand for HBM chips. The company's cloud memory business unit (CMBU), which is responsible for HBM sales, witnessed a remarkable 3.5x revenue increase, reaching $13.5 billion in the last fiscal year. Analysts project a 23% increase in GPU-related HBM demand and an even more substantial 82% increase from custom AI processors in the coming year. Micron currently supplies HBM chips to six major customers, including leading AI chipmakers like Nvidia, Broadcom, and AMD, solidifying its position in the AI supply chain.

Analysts predict that Micron's earnings could double in fiscal 2026. Given its current price-to-earnings ratio of 24, which is lower than the Nasdaq-100 index's multiple of 33, Micron presents an attractive valuation for investors seeking exposure to the AI sector. Assuming the stock trades in line with the index after a year and reaches $16.68 per share in earnings, its price could hit $550, representing a potential 170% gain from current levels.

The Future of Micron in the AI Landscape

Micron's strategic shift away from the Chinese market, while presenting a short-term challenge, is unlikely to derail its overall growth trajectory. The company's focus on HBM chips, driven by the explosive demand for AI infrastructure, positions it for long-term success. With an estimated $4 trillion investment in AI infrastructure expected by the end of the decade, Micron is well-placed to benefit from this secular trend. Its robust earnings growth, coupled with an attractive valuation, makes it a standout in the AI stock landscape.

However, investors should consider the risks. Geopolitical tensions and potential supply chain disruptions could impact Micron's future performance. The memory chip market is also cyclical, and a downturn in demand could negatively affect its revenue and earnings. Despite these risks, Micron's strong fundamentals and growth prospects make it a compelling investment for those seeking exposure to the AI revolution.

Investment Considerations

While Micron presents a promising investment opportunity, it is essential to consider alternative options. The Motley Fool's Stock Advisor team has identified other stocks that they believe are even better positioned for growth. These stocks could potentially generate significant returns in the coming years, offering investors alternative avenues to capitalize on the AI boom. Before investing in Micron, it's crucial to conduct thorough research and consider these alternative options to make informed investment decisions.