Micron Stock Is Soaring. Time to Buy?
- - Micron Stock Is Soaring. Time to Buy?
Daniel Sparks, The Motley FoolDecember 22, 2025 at 3:51 AM
0
Key Points -
AI memory demand, combined with pricing growth, is driving Micron's latest surge in growth.
Record results and a big guidance boost impressed investors last week.
Have investors who haven't already bought the stock missed out?
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Shares of Micron Technology (NASDAQ: MU) jumped last week after the company reported record fiscal first-quarter 2026 results and issued upbeat guidance for the current quarter. This added to an already strong performance for the tech company's stock this year, putting its year-to-date return at more than 200%.
The memory-chip specialist, which sells high-performance memory (DRAM) and storage devices (NAND) used in data centers and other computing devices, is benefiting from a wave of demand tied to AI (artificial intelligence) workloads. That demand has helped turn a once-weak earnings profile into a surge in profits and cash flow.
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But the challenge now is deciding whether Micron's recent improvement in fundamentals truly justifies the stock's massive move higher.
A person looking at charts on a laptop.
Image source: Getty Images
Revenue and profits are surging
Revenue in Micron's fiscal first quarter (the three-month period ending Nov. 27) rose to $13.6 billion, up about 57% year over year and roughly 21% from the prior quarter. That marked an acceleration, following 46% revenue growth in the fourth quarter of fiscal 2025.
The company's earnings momentum has been even more impressive. Micron's non-generally accepted accounting principles (GAAP) earnings per share were $4.78 in the first quarter of fiscal 2026. That compares with $3.03 in the fourth quarter of fiscal 2025 and $1.79 in the year-ago quarter, showing how quickly profitability has been improving for the company. Earnings have been helped by a widening gross profit margin, which reached the mid-50% range versus the high-30% range a year earlier.
The icing on the cake in Micron's growth story is its guidance.For fiscal Q2, Micron expects revenue of about $18.7 billion at the midpoint of its outlook and non-GAAP gross margin around 68%. Using last year's $8.05 billion in second-quarter revenue as a base, that midpoint implies just over 130% revenue growth year over year.
"Micron delivered record revenue and significant margin expansion at the company level and also in each of our business units," said Micron CEO Sanjay Mehrotra in the company's fiscal first-quarter update when summing up the quarter. "Our Q2 outlook reflects substantial records across revenue, gross margin, EPS and free cash flow, and we anticipate our business performance to continue strengthening through fiscal 2026."
One of the key drivers for these transformational results has been the company's position as an "essential AI enabler," Mehrotra explained in the update.
But a growth opportunity like this comes with some big spending plans.
Higher spending and price increases
Unsurprisingly, Micron's capital expenditures have been rising. Capital expenditures during the quarter were $4.5 billion, up from about $3.1 billion in the year-ago quarter. Notably, however, this growth was slower than the company's growth in revenue, so this isn't too worrying.
Perhaps the biggest risk for Micron is how dependent the company's recent revenue growth has been driven by pricing growth. Management emphasized in its fiscal first-quarter earnings release that its sequential growth in revenue has been primarily driven by price -- not shipment growth. For now, this is a huge tailwind for Micron. But if demand for its products takes a hit at some point, pricing could come down quickly, hurting margins and ultimately profits.
For now, however, pricing doesn't seem to be a concern. Management expects strong demand conditions for its products to persist beyond 2026 as AI data centers scale up.
With all of this said, Micron's financials look poised to improve dramatically this year. And while the tech company's business is capital-intensive, strong pricing growth is mitigating this risk factor to some extent.
So, is the stock a buy today, with shares trading at 25 times earnings? If you think the AI boom is likely to last years, then probably. But I'm not certain about the durability of the AI buildout as we see it today, so I'll happily stay on the sidelines.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Source: “AOL Money”
