Micron Technology, Inc. (NASDAQ: MU) appears to have a rather modest earnings multiple when compared to many suppliers in the AI sector, but profits from the memory cycle can shift surprisingly fast. Currently, it ranks third in the list of major AI infrastructure stocks, trailing just behind a couple of other firms that have more hedge fund investors. As of October 15, MU’s stock price was at $931.24, with fiscal 2026 anticipated earnings per share at $74.33—this equates to a multiple of 12.5 times earnings. It’s worth pondering how long such profitability might actually last for investors.
Start with the earnings that can disappear
In its latest earnings report for the fiscal year ending September 30, Micron revealed revenues amounting to $133.19 billion, along with a net income of $84.97 billion. The company boasted a gross margin of 86.8% in its final quarter. This strong profit margin isn’t confined to just one AI category; segments like cloud memory, core data center, mobile client, and automotive embedded solutions all reported outstanding margins.
The demand for AI memory and storage seems robust enough to sustain volume and a richer product mix. However, these cyclical advantages, such as limited supply and favorable pricing, can shift. Any increase in new capacity, adjustments in customer inventory, or a dip in pricing could lessen earnings, even as long-term demand is projected to grow. When comparing with Western Digital, one can ask which data supplier has more potential for profit normalization.
Imagine holding the share price steady while reducing annual earnings by varying percentages: say, 25%, 50%, and 75%. The multiples from those adjustments would be 16.7, 25.1, and 50.1 times, respectively. This exercise isn’t a forecast so much as it illustrates how a low multiple can occur alongside considerable earnings risk.
What must remain after the boom?
An investor aiming for a hypothetical 5% earnings yield at the current price would need annual earnings per share of $46.56, which is a significant 37.4% below the expected fiscal 2026 figure. If the requirement were 4%, that would mean needing $37.25, indicating a potential decline of nearly 50%. These figures set clear hurdles for investors rather than serve as fair value estimates, and it’s also crucial to note that accounting earnings must first fund investments before they can be turned into distributable cash.
During the last fiscal year, Micron generated $89.68 billion in operating cash flow, alongside reported capital investments totaling $27.37 billion. Continuous spending is required to stay competitive in technology. Fortunately, the company’s financial reserves are stronger now, providing liquidity that can help sustain operations even if equity valuations continue to drop.
The participation of institutional investors has also broadened; for instance, Insider Monkey noted an increase in holders from 154 to 184 in the second quarter of 2026. Interestingly, Water Street Capital cut its shares by 49%, which illustrates that wider ownership can be accompanied by individual selling. As for short interest as of September 30, it stood at 26.02 million shares, making up 2.31% of the float. However, this snapshot doesn’t clarify how sustainable earnings will play out.
Micron passes the illustrative earnings-yield test only if sustainable earnings meet the required threshold. This test doesn’t determine a shareholder return or fair value. For a 5% yield, that pivotal figure is $46.56 per share. Ultimately, pricing, margins, and commitments to capital will dictate whether this cushion holds firm; projecting from the most successful quarter could overlook substantial risks.
While MU has potential as an investment, there are other AI stocks that might offer better upside with less risk. For those interested in a very undervalued AI stock that stands to gain from recent tariffs and the trend toward bringing production back home, there are alternative opportunities worth exploring.
