Micron Technology shares staged a partial recovery on Friday, climbing 5.8% after a bruising 17% decline in the prior session. The bounce has refocused investor attention on the memory-chip maker's unusually depressed valuation, though the debate over whether that discount signals opportunity or danger remains unresolved.
At Thursday's closing level, Micron changed hands at roughly 3.7 times its projected fiscal 2027 earnings, according to FactSet. That multiple looks striking given consensus expectations that the company will more than double both revenue and profit in the current fiscal year, with additional growth forecast for the year after. Memory producers, however, have historically traded at low earnings multiples near cyclical peaks, when profits are temporarily inflated.
The memory-cycle question
The central risk is whether demand for memory chips used in AI servers could cool sooner than anticipated. Questions about the durability of AI infrastructure spending have intensified following Democratic gains in the US midterm elections, which some investors read as a signal that data-centre construction could slow. A memory downturn previously pencilled in for 2028 or later might arrive earlier if data-centre investment decelerates.
Micron has partial insulation through long-term take-or-pay agreements that cover more than 35% of its forecast revenue through 2030. These contracts obligate customers to pay for agreed volumes, which could soften the impact of ordinary supply-and-demand swings. Still, there is concern that buyers might push to renegotiate during an AI spending slump, as happened across the semiconductor industry when pandemic-era shortage contracts were later revised to preserve customer relationships. Micron has collected close to $32 billion in cash deposits under these arrangements, but the durability of the agreements remains a key consideration.
Buyback potential
Share repurchases represent another possible support for the stock. Micron can begin significant buybacks from December 9. Barron's estimates the company could repurchase $100 billion of its shares during the fiscal year ending in August 2027, a figure exceeding 10% of its current market value. The scale of any programme will depend on capital allocation decisions, but it gives investors another lens through which to assess the valuation.
Analysts split on AI outlook
Views on semiconductor valuations and AI spending remain divided. UBS analyst Nicolas Gaudois contends that the valuations of Micron's South Korean peers, SK Hynix and Samsung Electronics, already price in a memory price downturn in 2028. He sees a risk-reward setup for those two companies implying 160% potential upside over the next 12 months against 30% downside. Micron trades at only a modest premium to the Korean firms, suggesting a broadly comparable scenario.
Raymond James Chief Investment Officer Larry Adam stays constructive on AI infrastructure. He notes that some semiconductor and AI names are trading at discounts of roughly 30% to historical valuations and expects earnings growth to remain healthy, favouring a gradual rebuild of exposure to technology and chip stocks.
Dan Ives of Yorkville Ives has turned more cautious. He now assumes 10% fewer data centres in his base case, with reductions potentially reaching 15% to 20%, and expects Big Tech capital spending growth to peak in 2027, earlier than previously thought. Ives sees AI infrastructure projects as more likely to be delayed than cancelled outright, and his preference has shifted toward software stocks over semiconductor companies.
This article is for informational purposes only and does not constitute financial advice.
