Micron Technology (MU) shares rose 1.6% on Monday as investors continued to assess whether structural changes in the memory market could reduce the company’s historically high earnings volatility.
Micron shares have more than tripled this year but trade at just above six times forward earnings.
That makes the stock one of the cheapest in the S&P 500, with only Charter Communications and General Motors trading at lower multiples, according to a CNBC report.
The discount has historically reflected the cyclical nature of the memory industry.
When supply is tight, memory prices and semiconductor profits can rise sharply. But higher prices typically encourage additional capacity, eventually putting pressure on pricing and earnings.
The current cycle, however, could be different as artificial intelligence drives demand for high-bandwidth memory (HBM) used in AI systems.
AI demand keeps pressure on memory supply
Nvidia’s latest earnings highlighted the current pricing environment.
Nvidia CFO Colette Kress told analysts that the company was experiencing “extreme pricing conditions in memory” as component costs increased significantly.
Micron is one of three major suppliers of HBM for AI systems, potentially positioning it to benefit from elevated memory demand and pricing.
Despite that backdrop, Micron’s shares initially gained about 3% following Nvidia’s results before reversing and closing lower that session.
D.A. Davidson analyst Gil Luria attributed part of the move to a broader trading unwind involving semiconductor and software positions.
The reaction illustrates the debate surrounding Micron: investors must determine whether current earnings represent another peak in a traditional memory cycle or reflect a more durable change in the industry’s economics.
Additional memory capacity is expected to come online, including increased competition from China.
That could eventually put pressure on prices. However, Micron has also entered long-term customer agreements that could change the company’s exposure to future cycles.
Long-term contracts could limit downside
Micron’s newer agreements include binding volume commitments, take-or-pay provisions and, in many cases, price floors.
The contracts generally extend through 2030, and Micron has said that once planned agreements are completed, roughly half or more of its revenue should be covered.
These arrangements can limit Micron’s ability to capture the full upside when memory prices surge. But they could also provide protection when the cycle turns downward.
For contracts containing price bands, management has said minimum prices would imply gross margins “well above” Micron’s peak quarterly margins in previous memory cycles.
That creates a potential shift in how investors assess the stock. Rather than maximizing earnings during periods of extreme shortages, Micron may be exchanging some peak-cycle upside for greater earnings visibility.
The company remains exposed to market prices, and the memory industry is still cyclical.
Contracts can eventually reset, additional supply will enter the market and the long-term strength of AI demand remains uncertain.
The key question is whether those risks are now sufficiently lower to justify a higher valuation multiple.
Mizuho sees upside for Micron and SanDisk
Mizuho lowered its Micron price target to $1,300 from $1,375, citing multiple compression across the semiconductor sector.
Despite the lower target, Mizuho maintained a bullish fundamental view, noting that “aggregate DRAM demand continues to grow” and that market de-specification was a response to “tight DRAM supply.”
Mizuho also maintained an Outperform rating on SanDisk (SNDK), lowering its price target to $1,875 from $1,900. The firm expects SanDisk’s earnings per share to increase fivefold between fiscal 2026 and 2028.
Mizuho further estimated that SanDisk could potentially use $30 billion to $50 billion of aggregate free cash flow between 2027 and 2028 to repurchase 25% to 30% of the company.
The post Why is Micron stock gaining today appeared first on Invezz
