Micron's earnings report will be released tonight. After a 40% increase in stock price this month, can the AI frenzy continue to be the focus?

Zhitong Finance APP noted that Micron Technology (MU.US) will announce its earnings report after the market closes on Tuesday, which will reveal whether the stock price of this chip manufacturer has detached from its fundamentals after rising nearly 40% in September.

Wall Street expects Micron's performance to include a strong forecast for its high-bandwidth memory chips, which are key components in artificial intelligence infrastructure construction. This surge in demand comes as major companies like Oracle have explicitly committed to increasing AI spending, and NVIDIA is investing in OpenAI to support more AI infrastructure.

As a result, the typically unremarkable technology sector, such as memory, has become the center of AI optimism, with the stock prices of Seagate, Western Digital, and SanDisk all significantly rising in September alongside Micron. However, whether these gains can be validated by future growth remains to be seen. This is why investors are so eager to hear Micron's outlook forecast.

"Everything hinges on the earnings guidance; any numbers above market expectations will trigger widespread cheers," said Daniel Morgan, senior portfolio manager at Synovus Trust. The company held approximately 73,000 shares of Micron as of mid-September. "The rally in memory stocks is showing how AI is becoming a catalyst and benefiting sectors that typically do not gain from cycles. The way Western Digital and Seagate have risen further confirms this trend."

Micron's Super September

Micron is expected to achieve a net earnings per share of $2.65 and revenue of $11.2 billion for the fourth fiscal quarter ending August 31, up from $0.79 earnings per share and $7.8 billion revenue in the same period last year. The company raised its forecast last month, citing improvements in dynamic random-access memory (DRAM) chip prices. For the entire fiscal year, Micron expects net earnings per share to rise to $7.42, with revenue reaching $37 billion, compared to $0.70 and $25 billion for fiscal year 2024.

Last year's earnings report became a watershed moment for Micron, as its outlook forecast was so encouraging that the stock recorded its best single-day performance in 13 years following the announcement. Now, 12 months later, investors hope to see if this growth momentum can be sustained.

"Micron has been profitable for six consecutive quarters, and typically these DRAM cycles last six to eight quarters," Morgan said. "If this earnings report can give us confidence for 2026, it may indicate that this AI boom will extend the cycle beyond what we usually see."

Despite Micron's stock price rising this month (on track for its largest monthly gain in over 15 years), it remains cheap compared to its competitors. The stock's expected price-to-earnings ratio for the next 12 months is about 12 times, making it the cheapest component in the Philadelphia Semiconductor Index, which trades at a multiple of 26 times. There is a significant discount compared to AI chip bellwether NVIDIA, which has an expected price-to-earnings ratio of 32 times Stock Price is Quite Attractive

"According to Micron's standard as a major player in AI data centers and enterprise storage, a 12 times expected price-to-earnings ratio is quite attractive," said Hendy Susanto, portfolio manager at Gabelli Funds, which holds Micron stock. "At the same time, investors should not overlook that Micron's capital expenditures are at extremely high levels—$14 billion this year, and even more next year. Capital expenditures are expected to remain high for some time."

In addition, some Wall Street professionals believe that given Micron's boom-bust cycle characteristics, using earnings multiples for valuation can be misleading, meaning the company often swings between profits and losses. "During economic downturns, they tend to consume cash," said Jack Silverman, an analyst at Bloomberg Industry Research. He believes that tracking the price-to-book ratio is a better indicator, and by this measure, Micron is "well above the previous cycle" and shows some signs of euphoria.

Micron's stock closed at $164.62 on Monday, slightly above Wall Street's 12-month target price of $162.46, indicating that nearly 80% of analysts giving a "buy" rating do not expect much upside from now on.

Micron Technology's stock price exceeds analyst expectations

"If forced to choose, I would call Micron a hold rather than a buy or sell," Susanto said. "The unpredictability of Micron lies in its price trends, which can fluctuate significantly, meaning profits can swing wildly, which obviously directly affects valuation."

Several analysts have recently discussed Micron's growth potential in the data center market, which is central to AI trading. Citigroup analyst Christopher Danly wrote in a report to clients earlier this month that the company is benefiting from demand that exceeds production and is above expectations. He expects Micron's guidance in this earnings report to be "well above consensus expectations," as data centers account for more than half of its revenue.

Nevertheless, after a significant rise in Micron's stock price over the past few weeks, investors are proceeding with caution. For chip manufacturers, growth is rarely linear, so a decline, even a brief one, is always possible.

"Despite the huge AI prospects, Micron remains a highly cyclical stock," said Morgan from Synovus. "DRAM is such a commodity business. Micron is in a favorable position, but it is not NVIDIA, which can achieve massive profits."