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

What Happened

Micron Technology, a key player in the memory chip market, has seen its stock price surge by an impressive 140% in 2025. This rally is fueled by the increasing demand for its high-bandwidth memory (HBM) chips, essential for AI applications. Despite this growth, Micron's valuation remains attractive compared to other tech stocks, making it a potentially undervalued investment.

Why It Matters

The AI boom has created a surge in demand for specialized memory chips like HBM. Micron's ability to capitalize on this demand, coupled with its strong fiscal performance, positions it as a significant beneficiary of the AI revolution. The company's revenue jumped 49% to $37.4 billion in fiscal 2025, driven by improved memory chip pricing and robust demand. Adjusted earnings per share soared to $8.29 from $1.30 the previous year, showcasing the company's profitability.

However, Micron faces a challenge: it's exiting the data center business in China due to a ban imposed by Beijing in 2023. This move will impact Micron's revenue, as China accounted for 7% of its top line in the previous fiscal year, generating $2.6 billion. While this is a setback, Micron plans to redirect its data center memory capacity to other markets. It will continue serving Chinese customers operating outside mainland China, including Lenovo, and will keep selling chips for automotive, smartphone, and PC applications within China. This strategic shift aims to mitigate the impact of the Chinese ban and leverage growth opportunities elsewhere.

Growth Opportunities

Micron is actively expanding its manufacturing capacity to meet the soaring demand for HBM chips. The company's cloud memory business unit (CMBU), responsible for HBM sales, witnessed a remarkable 3.5x revenue increase, reaching $13.5 billion in the last fiscal year. Goldman Sachs projects a 23% increase in GPU-related HBM demand and an even more substantial 82% increase from custom AI processors next year. Micron currently supplies HBM chips to six 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, 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. This impressive growth potential makes Micron a compelling investment opportunity.

Our Take

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.

Still, 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, 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 monster returns in the coming years, offering investors alternative avenues to capitalize on the AI boom. Before investing in Micron, it's essential to consider these alternative options and conduct thorough research to make informed investment decisions.