Micron mania

The AI trade has survived recession fears, tariffs, and daily predictions that the party is over. But somehow, whenever investors start wondering whether the AI trade has any more room left to run, another company comes along with a reminder that the AI buildout is still in full swing.

The memory boom

Micron jumped 6.82% today after deepening its ties with Anthropic, partnering with the AI startup to supply memory and storage chips while also investing in its latest funding round. The announcement comes just ahead of Micron’s earnings report on Wednesday, and expectations are now sky-high.

After posting a 756% year-over-year jump in EPS last quarter, the memory chip-maker is expected to increase profits nearly 1,000% this quarter. Looking further ahead, Micron is expected to generate $136.7 billion in net income by 2027—far more than Amazon and Meta, and roughly on par with Apple.

Much of Micron’s growth is being driven by rising memory prices as AI demand continues to outpace supply. With the market expected to remain tight, analysts don’t foresee meaningful price declines for at least the next 12 to 18 months, even as Micron ramps up production capacity.

Peers Samsung and SK Hynix have also benefited from surging AI demand, with Samsung’s EPS rising roughly 500% year over year last quarter, and SK Hynix’s operating profit jumping 406%. Both became $1 trillion companies last month, as did Micron—the cherry on top of each company’s recent rise to stock market superstardom.

A valuation disconnect

Despite its rapid growth, Micron still trades at just about 9 times forward earnings as of last week, and SK Hynix and Samsung trade at roughly 6.5 times—well below Nvidia’s roughly 23 times, for example. Investors are worried that today’s AI spending boom could prove temporary, and if the biggest AI buyers pull back, the companies supplying the AI infrastructure—including Micron—could see their growth slow sharply.

Whether those fears are well-founded may become a little clearer on Wednesday. But for now, a company with profits growing nearly 1,000% while trading at a single-digit earnings multiple doesn’t seem like the worst bargain on Wall Street.—SY