Micron’s Rally Looks Overdone Until You Price The Memory Shortage

Key Points:

• Micron Technology's stock has surged 552% over the past year, currently trading at around $1,070 per share, with a trailing twelve-month adjusted earnings multiple of about 23.5 times, which may not reflect current earnings due to rapid price changes.
• Analysts project fiscal 2027 earnings to justify a forward price-to-earnings ratio of approximately 6.8 times, dropping to 6.2 times in 2028, based on Micron's revenue guidance and expectations of sustained market shortages.
• Revenue growth has been driven more by rising prices than volume, with DRAM prices increasing significantly and gross margins reaching a record 84.9% in fiscal Q3 2026, fueled by strong AI demand and data center sales exceeding $25 billion.
• Management anticipates gross margins to remain high, projecting an 86% margin in fiscal Q4 2026, supported by tight DRAM and NAND markets expected to persist beyond 2027 due to slow new supply capacity expansion.
• Strategic customer contracts covering a substantial portion of Micron's volume provide margin protection through floor prices, though many include price caps that may limit upside beyond mid-2026; analysts' 2028 earnings estimates vary widely, reflecting uncertainty about how long memory shortages will last.