After surging 40%, Micron needs guidance that exceeds expectations to justify its valuation.

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After the US stock market closes on Tuesday, Micron Technology will release its earnings report. The market will closely watch whether this memory chip manufacturer can provide sufficiently strong guidance to support its astonishing nearly 40% increase in September.

Wall Street expects Micron to give an optimistic outlook for its high-bandwidth memory chip business, a key component in building artificial intelligence infrastructure. As large companies like Oracle reiterate their commitment to AI investment, and Nvidia invests in OpenAI to support more AI infrastructure construction, related demand continues to rise.

Driven by this, traditionally relatively calm tech industry segments such as memory and storage have become the center of AI optimism. The stock prices of companies like Seagate Technology, Western Digital, and SanDisk all rose sharply along with Micron in September.

Investors widely believe that whether Micron can provide guidance exceeding market expectations will determine its stock price trend. Daniel Morgan, Senior Portfolio Manager at Synovus Trust, said:

The key is guidance; any statement exceeding consensus expectations will trigger a widespread and enthusiastic response.

Earnings Expectations Improve Significantly

The market expects Micron’s fourth fiscal quarter (ending August 31) earnings per share to be $2.65 on revenue of $11.2 billion, a sharp increase from last year’s $0.79 per share and $7.8 billion in revenue. The company raised its expectations last month, citing improved DRAM chip pricing.

For the full fiscal year, Micron’s net earnings per share are expected to rise to $7.42, with revenue reaching $37 billion, compared to $0.70 and $25 billion in fiscal 2024. Last year’s earnings report was a watershed moment for Micron, as its optimistic outlook drove the stock to its best single-day performance in 13 years.

Morgan pointed out:

Micron has been profitable for six consecutive quarters, and these DRAM cycles usually last six to eight quarters. If this earnings report can provide reliable expectations for 2026, it may indicate the AI boom will extend the cycle beyond what we typically see.

Valuation Remains Cheap but Divided Opinions Exist

Micron’s stock closed at $164.62 on Monday, slightly above Wall Street’s 12-month price target of $162.46.

Although Micron’s stock soared 40% this month, on track for its largest monthly gain in over 15 years, it still appears cheap compared to its peers. Its price-to-earnings ratio based on projected earnings over the next 12 months is about 12 times, making it the cheapest constituent in the Philadelphia Semiconductor Index, whose overall P/E ratio is 26 times—far lower than Nvidia’s 32 times.

Hendi Susanto, portfolio manager at Gabelli Funds, said that from the perspective of Micron being a major player in AI data centers and enterprise storage, a 12 times forward P/E ratio is quite attractive. At the same time, investors should not ignore that Micron’s capital expenditures are at a very high level—$14 billion this year and even more next year."

However, some Wall Street professionals think the P/E ratio is a misleading metric for assessing Micron’s value, due to the company’s cyclical boom-and-bust nature. Bloomberg Intelligence analyst Jake Silverman stated that the price-to-book ratio is a better measure, and by this indicator, Micron is “well above the previous cycle,” indicating a certain level of excessive optimism.

AI Demand Drives Growth But Cyclical Risks Remain

Citi analyst Christopher Danely wrote in a client report earlier this month that Micron is benefiting from demand that exceeds expectations, outpacing production capability. He expects Micron to give guidance that far surpasses consensus because data center business accounts for more than half of its revenue.

However, after the stock price’s sharp rise in recent weeks, investors are exercising caution. Chipmakers’ growth rarely follows a linear path—even short-term declines are always possible.

Morgan concluded: While AI is significant, Micron is still a highly cyclical stock. Micron is well-positioned, but it is not Nvidia and cannot enjoy massive profit margins.

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