Micron(NASDAQ: MU) has been one of the biggest winners of the artificial intelligence (AI) megatrend. Demand for memory chips has soared as memory has proven to be one of the biggest bottlenecks controlling the pace of the AI infrastructure build-out. With demand for training and inference processing power rising, and with supplies from memory chipmakers limited, sellers such as Micron have enjoyed tremendous pricing power.
That has resulted in phenomenal earnings growth for the company in recent years, and the stock has followed suit. With shares up more than 800% in the past year, Micron is now a trillion-dollar company. After gains like that, many investors may be wondering if there’s still time to buy, or if it’s time for those who got in earlier to take profits. Here’s my prediction for where Micron will be in two years.
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The memory market will change a lot over the next two years
Micron is one of just three main manufacturers producing high-bandwidth memory (HBM), a specific type of memory chip that is commonly attached to GPUs and other AI accelerator chips. HBM uses multiple DRAM chips stacked together, and requires significantly more production capacity than other types of memory to produce a similar number of completed chips. But memory chipmakers have been relatively slow to respond to demand, aside from raising prices as much as the market will allow.
This is in part because it takes considerable time and capital to build new chip foundries and outfit them with equipment. Micron’s management plans to spend $200 billion over the next several years to rapidly expand its production capacity and help meet the soaring demand for memory. It expects meaningful supply expansion in 2027 and 2028. Its peers have provided similar timelines for various projects aimed at expanding their own production capacity.
Micron’s spending will help it capitalize on the market’s demand. However, it has every reason to act cautiously. Many of its customers are placing advanced orders, snatching up as much capacity as they can now to get ahead of competitors. The cycle feeds itself, driving demand higher, pushing prices higher, which pushes demand higher still as customers look to lock in prices while they can. However, some forecasters predict that supply will catch up to demand in 2028, at which point pricing would start to normalize. At that point, the shortage could ease and reverse into oversupply. That’s especially true given that three companies are all building out massive new production facilities for memory chips. If there’s a glut, the result will be a significant decline in their revenues and earnings, as their operating costs will remain structurally higher with the new facilities in operation.
It’s a cycle that has played out over and over again in the semiconductor sector, with memory-chip makers especially vulnerable to big fluctuations in earnings from peak to trough. Based on the outlooks given by the management teams at Micron and its peers, I expect earnings in this cycle to peak in 2028.
How much will Micron be worth in 2028?
Examining past earnings cycles, we can look at minimum P/E ratios for Micron stock around previous earnings peaks. Here are the last four earnings-per-share (EPS) peaks and the minimum P/E ratio Micron stock traded at around each one.
TTM Earnings Peak
TTM EPS
Low P/E Ratio
Q4 2010
$1.86
3.5
Q2 2015
$3.26
8.1
Q1 2019
$12.13
2.4
Q3 2022
$8.78
6.1
Data source: YCharts. TTM = trailing 12 months.
For the most part, Micron’s P/E ratio reached its cyclical bottom shortly after the company reported peak earnings. It fell further following its 2015 earnings peak as the next two quarters’ earnings reports disappointed investors, leading to a massive drop in the share price. The company eventually saw its P/E ratio drop to about 4.8 in late 2015.
I expect Micron to reach the peak of the current earnings cycle in 2028. At that point, we can expect it to be trading at around 4.5 times trailing earnings, based on historical data. Analysts currently estimate fiscal 2027 earnings per share will be $104, but are forecasting an EPS decline in 2028. If Micron’s trailing-12-month earnings reach $115 per share in mid-2028 before the decline, at a 4.5 P/E ratio, the stock would reasonably be worth about $517.50 at that point. However, based on the historical range, it could be trading anywhere between $275 and $930.
That outlook makes the stock’s current price of $899 look extremely expensive. To justify that price, the boom phase of this cycle will have to extend much longer and reach a much higher earnings peak. Yet it has already lasted longer than average and produced far stronger earnings growth than any prior cycle for Micron. It’s also possible, however, that when earnings do slump, the collapse won’t be as drastic as the ones of cycles past, as there will be a new floor for demand due to all the massive AI data centers being built, which will require replacement hardware over time. Still, before I invest, I’d prefer to see evidence that that will be the case. The odds seem good that Micron stock will be trading below its current price in two years.
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.
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