Micron’s $370 Billion Stock Rebound Hinges on AI Spending View

Micron Technology Inc. shares have rebounded from a summer selloff as fears about a potential pullback in AI spending have faded. Now investors want assurances from the memory-chip maker that the long-term outlook for demand remains bright.

When Micron reports results on Wednesday after markets close, the biggest focus will be on executives’ comments on the earnings call, according to Daniel Morgan, senior portfolio manager at Synovus Trust, which owns Micron shares.

If they say “we don’t expect the hyperscalers to wheel in those huge capex budgets next year, we expect it to continue, that could really propel the stock higher.”

The chipmaker’s shares have gained more than 40% from a July 29 low, adding about $370 billion in market value, after better-than-expected revenue growth from cloud-computing providers like Microsoft Corp. calmed fears that they might rein in heavy spending on AI infrastructure.

The expenditures have hoovered up supply of memory chips, driving up prices and sending profits soaring for Micron, as well as rivals SK Hynix Inc. and Samsung Electronics Co. Ltd. While those dynamics aren’t expected to change anytime soon, investors are wary about how much longer the good times can last in an industry notorious for its boom-and-bust cycles.

Memory and storage stocks have been among the best performing in the S&P 500 all year, but they’ve struggled to regain the momentum they had prior to the selloff that started in June. Micron is up 273% this year, making it the fourth-best performer in the index. However, it remains down 12% from its June 25 peak. SanDisk Corp., which is the best performer in the S&P 500 with a more than 600% gain, is down 26% from its own peak notched on the same day.

To recapture those records, the companies will need to convince investors that the pricing power and profitability they have now has plenty of runway, according to Shaon Baqui, a senior equity analyst at Janus Henderson, which holds Micron shares.

“If the memory industry could maintain this sort of cruising altitude in the 80%-plus gross margin level with sustained cash flows, I think that could eventually drive a re-rating in the stock,” said Baqui, referring to a higher price-to-earnings multiple.

Micron is expected to report net income of $36 billion on sales of $51.5 billion in its fiscal fourth quarter, which ended in August, according to the average of analyst estimates compiled by Bloomberg. That would represent increases of more than 1,000% and 350%, respectively, from a year ago. Gross margin is expected to be 86%, up from 46% in the fourth quarter of 2025.

However, revenue growth is expected to slow to 96% in fiscal 2027, from a 247% expansion in fiscal 2026, before shrinking to just 12% in fiscal 2028.

While the memory industry’s cyclical history has long weighed on Micron’s valuation, the anticipated slowdown in growth helps explain why Micron shares are priced at about 7 times profit expected over the next 12 months, compared with an average forward multiple of roughly 10 times over the past two years. By contrast, the S&P 500 trades at 19 times.

In addition to concerns about whether heavy AI spending will pay off, the AI infrastructure trade has been whiplashed in recent weeks by fears about safety and excitement about Meta Platforms Inc.’s Muse AI agent.

The Philadelphia Stock Exchange Semiconductor Index dropped nearly 6% on Sept. 14. after Anthropic Chief Executive Officer Dario Amodei called for slowing development of cutting-edge AI models to improve safeguards. Since then, however, the popularity of Muse, which is designed to be used as a personal assistant, has boosted confidence in consumer AI use and helped fuel a more than 13% gain in the semiconductor index.

Despite lingering anxiety about the outlook for the memory market, supply and demand conditions are likely to remain “very tight” for multiple years, according to Morgan Stanley analysts led by Joseph Moore.

“The debate has very clearly shifted from ‘how good can it get?’ to ‘how long can it stay this good,’” they wrote in a Sept. 28 note. “While we do believe the strength in memory will be durable, we would acknowledge that duration debates take longer to pay off, as there’s no real way to prove that near term.”

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Earnings postmarket:Micron Technology Inc. (MU US)Progress Software Corp. (PRGS US)