Micron Technology ( MU 2.40% ) is one of the world's leading suppliers of high-bandwidth memory (HBM) for data centers, an essential component in the artificial intelligence (AI) hardware stack. HBM is in short supply right now, so Micron has the power to dictate prices, which is fueling a surge in the company's revenue and earnings. Micron stock is up by nearly 700% over the past year, but it plummeted 20% from its all-time high last week after semiconductor supplier Broadcom issued a conservative forecast for its future AI sales. This made Wall Street nervous about a potential slowdown in hardware demand. On June 24, Micron will release its latest quarterly operating results, which will give the Street some additional perspective. Should investors buy the stock ahead of the report, or is more downside potentially ahead? Without memory, there would be no AI Nvidia and Advanced Micro Devices supply some of the world's best graphics processing units (GPUs) for data centers, which provide most of the computing power in AI training and inference workloads. HBM keeps information ready for when GPUs need it, preventing processing bottlenecks. Without sufficient memory capacity, AI software applications would be slow and clunky for their users. Micron recently began producing its new HBM4 chips, which offer 60% more capacity than its previous HBM3E solution, in addition to a 20% improvement in energy efficiency. This is the perfect combination for AI developers constantly chasing the fastest processing speeds at the lowest cost. Nvidia will use Micron's HBM4 chips in its new Vera Rubin GPU systems, which will ship in the second half of this year. Vera Rubin is widely expected to be the most powerful data center platform for AI development in the industry. The HMB market was worth $35 billion last year, and Micron thinks it will almost triple in size to $100 billion in 2028. That estimate could be in jeopardy if there is a slowdown in AI infrastructure spending, but with the company's entire 2026 HMB supply already sold out, demand probably isn't a near-term issue. Micron's guidance points to blistering growth for Q3 Micron delivered $23.8 billion in total revenue during its fiscal 2026 second quarter (ended Feb. 26), which was a whopping 196% increase from the year-ago period. That growth rate marked an acceleration from 56% in the previous quarter, three months earlier, driven by significant momentum in AI-related memory sales. But even faster growth might be on the horizon. Micron's fiscal 2026 third quarter concluded at the end of May, and management's guidance suggests revenue likely came in at around $33.5 billion, representing an eye-popping 260% increase. Plus, given Micron's incredible pricing power due to the severe memory shortage, the company could show earnings of $18.90 per share for the third quarter, up 1,025%. Micron stock looks cheap, but there's a catch Micron's trailing 12-month earnings currently stand at $21.18 per share, placing its stock at a price-to-earnings (P/E) ratio of 40.8 as of the close on Friday, June 5. That means it's slightly more expensive than the Nasdaq-100 technology index, which has a P/E ratio of 35.2. However, stock market investors are always looking ahead, and Wall Street thinks Micron could grow its earnings to $105.95 per share in fiscal 2027, placing its stock at a forward P/E ratio of just 8.1. From that perspective, the stock looks like an absolute bargain heading into June 24. Today's Change ( -2.40 %) $ -22.76 Current Price $ 926.52 But two issues could see last week's 20% decline in Micron stock get even worse. First, memory suppliers are racing to build more production capacity, so prices are likely to normalize over the next year or two, which will make it extremely difficult for Micron to continue growing its earnings. In fact, its earnings could even shrink at some point in the future, so its stock might currently be more expensive than it appears at face value. Price reductions could happen even faster if demand slows, which brings me to the second issue. Last Wednesday, Broadcom provided two revenue forecasts for its AI semiconductor business, one covering the upcoming quarter and the other covering the next fiscal year. Both fell short of Wall Street's expectations, so analysts might be wondering whether peak AI hardware demand is now on the horizon. If so, investors might be paying too much for chip stocks across the board. But it gets worse. Last month, Alphabet CEO Sundar Pichai said he was fielding complaints from many of Google's enterprise customers about rising AI usage costs, which is another negative signal for the demand picture. Around the same time, the chief operating officer of Uber Technologies -- which is a major customer of Anthropic -- said AI spending is getting harder to justify. His company blew through its entire 2026 budget in just four months due to passive price increases, which simply isn't sustainable. With all that in mind, I don't think investors should rush to buy Micron stock on the recent dip. Even if the company produces a spectacular third-quarter report on June 24, Wall Street will be more focused on the future, which is cloudier than ever.

Source: The Motley Fool

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