Micron Stock: I Was Wrong in July, and I’m even more pessimistic about this stock and value creation

Coming from a phenomenal quarter, Micron has just had the greatest year in its history, and it has beaten the test I set in July. I still think the market is making the oldest mistake in the memory business: treating the top of a shortage as the new normal.

Let me say where I stand before I say anything else. I think Micron’s extraordinary year is the peak of a cycle, and I think the market is pricing it as a plateau. This is the same position I had in July, when the shares were $979.30 and I said avoid the stock. Since then the shares have risen about 12 percent, and the company has cleared the one test I set for it.

What is still my main concern for long term shareholder growth is what the CEO said in July. His company was in the middle of raising $26.5 billion, in a record share listing, to pay for new factories. And he predicted that the shortage of memory that had made his industry so rich would last beyond 2030.

The shortage is the reason to build the factories. The factories are what end the shortage and he was describing both halves of the cycle at once.

None of this is a knock on what Micron has just done. In fiscal 2025, it earned $8.5 billion. In fiscal 2026, which ended in September, it earned $85 billion. Ten times as much, in a single year. In its final quarter alone, Micron took in more revenue than in the whole of the year before, and it kept about 87 cents of every dollar after paying to make what it sold.
Artificial intelligence turned memory from a commodity people grumbled about into one of the scarcest parts of the modern data center.

When the results came out, options traders had braced for a move of seven or eight percent. The shares finished the evening up about a third of one percent.
Some people read that shrug as the market finally getting nervous. I read it the other way. The market is not euphoric about Micron. It is calm, and calm is the more dangerous mood. It is paying for the best year in the company’s history as if that year were simply the new baseline, which is complacency and such rapid growth and expansion.

In the fall of 2018, Micron had the best year it had ever had. In its final quarter it kept 61 cents of gross profit from every dollar of memory it sold, a record for the company. That November, with the profits still rolling in, investors sold the shares down to less than three times what the company had earned over the previous year. Within about a year, the margin was less than half its record. Micron had earned about $11.50 a share in fiscal 2018. In fiscal 2020 it earned $2.37.

Three years later it happened again. By 2021 the margin was back up to 47 percent. By fiscal 2023 Micron was selling memory for less than it cost to make, and it lost $5.8 billion in a single year. The shares saw it coming first. Between January and September of 2022, while Micron was still reporting healthy profits, they lost roughly half their value.

The investors who sold in November 2018 were reading history rather than the income statement. Each time, the shortage paid for new factories, and the new factories ended the shortage.
The same signs are signaling and is history repeating?

The price of memory is slowing. A memory maker’s revenue is two things multiplied together: how many chips it ships, and what it gets for each one. Micron has barely been shipping more. Most of this year’s growth came from the selling price going up. In the quarter Micron reported in June, the selling price of DRAM, its main product, rose by something in the low sixties, in percent, in three months. In the quarter it has just reported, it rose in the high teens. Still rising, but less than a third as fast. And through September, prices for memory chips traded on the open market began to cool. One widely watched chip fell 3.6 percent in a single week. Profits follow the level of memory prices. Shares tend to follow their direction.

The customers are noticing the price pressure too. In August, Nvidia, one of the largest buyers of memory in the world, warned that its own margins would shrink and named the reason: “extreme pricing conditions in memory.” Micron’s record profit is Nvidia’s complaint, seen from the other side of the invoice. When your biggest customers start saying that in public, the clock has started.
And the factories are coming. SK hynix’s new plant in Cheongju is reportedly already ramping up. Micron plans to spend about $25 billion on new capacity in the first half of its new fiscal year, nearly as much as it spent in all of the last one.

The shortage is paying for the factories again.
Where I was wrong and the part that I need to be truthful about and my prior recommendation. In July, I couldn’t believe the forecast: that Micron would go on to earn something like $149.64 a share in fiscal 2027. The company has since guided to $38.15 a share for the first quarter of that year alone. Multiply by four and it clears the number I doubted. On the test I set myself, the business has beaten me so far, and anyone who ignored me has made money. I would rather tell you that myself than have you work it out.
 
This was an extraordinary year, but it came from the price of memory, not from anything that makes Micron harder to copy.

Is MU at a fair price? No. The market is treating Micron’s best year as if it were a normal one. I wouldn’t make that bet with the selling price slowing, the factories coming, and a ten-year Treasury paying 5.24 percent, the most since 2002.