There are many reasons for investors to doubt the durability of Micron’s (NASDAQ: MU) AI boom and the AI boom in general, but one key factor is too significant to ignore—and it trumps all the concerns.
AI is a power-hungry technology. Its growing energy demands are already pushing data centers and chip suppliers to focus on energy efficiency and heat reduction, while accelerating wear on underlying hardware
Estimates vary, and it’s still early in the game, but experts tend to agree that the AI datacenter upgrade cycle will be accelerated. Some believe it could require a complete refit of equipment every 18 to 24 months, which is about twice as fast as traditional hardware cycles. Add in the fact that upcoming generations of GPUs—NVIDIA’s (NASDAQ: NVDA) Vera Rubin and Advanced Micro Devices' (NASDAQ: AMD) MI450 line, for example—and the cycle may be even shorter.
In a world where HBM demand is so high that capacity is sold out for the foreseeable future and prices are skyrocketing, Micron is well-positioned.
Each AI GPU requires numerous stacks of High Bandwidth Memory (HBM), setting the stage for Micron to continue growing and then sustaining its revenue at a very high level.
As it stands, Micron is trading in deep value territory relative to current-year and next year’s earnings forecasts. Beyond that, the projections aren’t serious. They have not seen significant revisions for months and lag the outlook, expecting revenue to decline in fiscal year (FY) 2028 and to accelerate in FY2029.
The likely outcome is that Micron continues to outperform, with analysts upgrading forecasts for long-term revenue and earnings, which should lift stock prices. Even so, the 5x valuation relative to the FY2027 estimate suggests this stock could rise by at least 100%, and potentially as much as 400%, to align with the broader market. Assuming the market decides it's time for Micron to command a premium, thousands of basis points (bps) would be added to this forecast.
Micron’s Q2 Blowout Put AI Memory Demand Front and Center
Micron posted a blockbuster quarter, reminiscent of NVIDIA’s first AI-driven blowout, and is expected to continue producing similar results in the upcoming quarters.
The company's revenue surged to $23.86 billion, up 197% year over year (YOY) and outpacing the consensus estimate by 2,300 basis points. Strength was seen across all segments compared to last year, as demand in all end markets reverted to more normalized activity.
- Mobile and Client: $7.71 billion (up 245%)
- Core Data Center: $5.69 billion (up 211%)
- Automotive and Embedded: $2.71 billion (up 162%)
- Cloud Memory: $7.75 billion (up 163%)
Margins were also strong, improving by thousands of basis points YOY at the gross, operating, and net levels. Gross margin widened by about 3,700 basis points, pushing gross profit up roughly 5.9x. Operating margin climbed from 24.9% to 69%, and net income rose about 7.8x.
The critical detail, earnings per share (EPS), is the most mind-blowing of them all: $12.20 per share, more than 4,100 bps better than MarketBeat’s reported consensus at $8.50, and nearly 8x better than last year.
Guidance is also stunning, underpinning the valuation and stock price outlook. The company expects revenue growth to accelerate again, topping 250% at the mid-point for the quarter, with earnings growth accelerating to approximately 875%. Needless to say, these figures are better than expected and potentially cautious, given the AI/datacenter spending trends and broader, end-market normalization.
Analysts Gush With Praise Following Micron’s Beat and Raise Quarter
Analyst reaction is overwhelmingly bullish, with the only concern being the projected spending ramp, which will focus on capacity expansion and quality improvements and enable Micron to better meet demand as it transitions to HBM4 production.
Analysts largely held or increased their views: no downgrades or price-target cuts were issued, several firms reiterated bullish ratings and above-consensus targets, and others raised targets toward the high end.
The consensus lags price action in mid-March but is up nearly 200% on a trailing-twelve-month basis, with the high-end pegged at $700.
A brief sell-the-news pullback followed the release, but it was shallow and quickly absorbed. Any further weakness is likely to be limited, with dips finding support at higher levels as Micron’s improving outlook continues to drive the stock upward.
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The article "Micron’s Mic-Drop Quarter: AI Memory Demand Supercharged Earnings" first appeared on MarketBeat.
