It’s fair to say that Nasdaq chip stock Micron (NASDAQ: MU) is hot right now. Over the last year, it has surged about 350% amid an AI-related memory ‘supercycle’.
Now, I’ve completely missed out on these explosive gains sadly. Could the tech stock still be worth buying for my ISA though?
Blowout earnings
Last night (18 March), Micron posted its earnings for the second quarter of its fiscal 2026 year. And they blew the doors off Wall Street expectations.
For the quarter, revenue came in at a record $23.86bn, up 196% year on year. Meanwhile, adjusted earnings per share came in at a record $12.20 – miles ahead of the consensus forecast of $9.31 – versus $1.56 a year earlier (+682% year on year).
Commenting on the earnings, CEO Sanjay Mehrotra said: “In the AI era, memory has become a strategic asset for our customers.” He added that the company expects “significant records again in fiscal Q3.”
Zooming in on the guidance, the company said that for Q3, it expects revenue of $33.5bn plus or minus $750m (implying year-on-year growth of over 250%) and diluted earnings per share of $19.15 plus or minus $0.40. Analysts had been expecting $12.05 in earnings per share on $24.3bn in revenue so this guidance was way above estimates.
The stock still looks cheap
So clearly, Micron is benefitting from the AI boom. What’s happening is that demand for memory is surging as a result of high demand for GPUs made by the likes of Nvidia, which require memory to power generative AI models.
What’s interesting is that the stock still looks really cheap. Currently, it trades on a forward-looking price-to-earnings (P/E) ratio of just 7.3 using next financial year’s earnings forecast (which may go up given the momentum the company has right now).
Note that several Wall Street firms have raised their price targets for the stock after last night’s earnings. Both JP Morgan and TD Cowen are targeting $550 – about 24% higher than the current share price.
What are the risks?
However, while there’s a lot to be excited about here, there are quite a few risks. One is that the memory business is cyclical.
So, while Micron’s revenues are surging right now, things could quickly change. Note that in 2016, 2019, and 2023, Micron’s revenues plummeted year on year.
In the near term, the AI boom should support demand. But if Big Tech companies stop spending on Nvidia’s GPUs, things could get ugly.
Another issue is that Micron just told investors that capital expenditures will “step up meaningfully” in fiscal 2027 with construction-related costs rising by over $10bn. This kind of capex could hit profits.
Of course, after a 350% rise in the share price over the last year (the chart is parabolic and that scares me), there’s always the chance of some profit taking at some point (maybe even today). This is another risk to consider.
My move now
Putting this all together, I’m not going to buy Micron stock yet. I need to do some more research.
I want to get a better idea of long-term demand for memory. I also want to learn more about the company’s competitive advantage.
