Is Micron Still a Good Value After Its 171% Surge Amid AI Chip Demand?

• Wondering if Micron Technology's share price still offers value after its explosive run? You are not alone in wanting a fresh take, especially with so much noise in the market right now.
• The stock has risen an eye-popping 171.3% year-to-date, with a 26.7% surge in the past month. However, it dipped slightly by 0.6% this week.
• Recent headlines highlight Micron's strategic gains in the AI-related memory space and its growing prominence in next-generation chip manufacturing. This has fueled interest and optimism in the sector. Industry buzz about soaring demand for high-bandwidth memory chips has investors paying close attention to every move the company makes.
• Currently, Micron Technology scores 3 out of 6 on our undervaluation checklist, which means it passes half the tests for being considered good value. We are about to break down these methods, but stick around to discover a smarter way to look at valuation by the end of this article.

Micron Technology delivered 139.9% returns over the last year. See how this stacks up to the rest of the Semiconductor industry.

Approach 1: Micron Technology Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company's value by projecting its future cash flows and discounting them back to today's value. The idea is to determine the worth of Micron Technology based on how much cash it is expected to generate in the future, measured in today's dollars.

For Micron Technology, the latest reported Free Cash Flow is $2.22 billion. Looking ahead, analysts project Free Cash Flow to grow significantly over the next five years, with official analyst estimates increasing from $8.12 billion in 2026 to $13.68 billion in 2028. Projections beyond this period, such as the $10.60 billion expected by 2030, are derived by extending current trends.

Applying the DCF approach results in an intrinsic value estimate of $103.70 per share. Compared to Micron's current share price, this valuation implies the stock is trading at a premium, specifically 128.5 percent above the calculated fair value. According to this method, it is substantially overvalued.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Micron Technology may be overvalued by 128.5%. Discover 882 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Micron Technology.

Approach 2: Micron Technology Price vs Earnings

For profitable companies like Micron Technology, the price-to-earnings (PE) ratio is a widely accepted metric for valuation. The PE ratio shows how much investors are willing to pay for each dollar of earnings, and is particularly relevant when a company consistently generates profits, as is the case with Micron.

The appropriate or "fair" PE ratio for any company is influenced by its growth prospects, risk profile, and the broader market environment. Stocks with higher growth potential and lower risks typically command higher PE ratios, while riskier or slower-growth companies generally trade at lower multiples.

Currently, Micron’s PE ratio stands at 31.1x. This is slightly below the semiconductor industry average of 34.2x and well below the peer average of 92.8x. However, these benchmarks do not account for all company-specific factors that can influence valuation.

This is where Simply Wall St's Fair Ratio comes in. The Fair Ratio for Micron Technology is calculated to be 43.0x, based on its unique blend of earnings growth, profit margins, market capitalization, industry characteristics, and risk levels. Unlike a simple peer or industry comparison, the Fair Ratio adjusts for what truly matters to investors: the company's outlook and its risk/reward profile.

Comparing Micron’s actual PE ratio of 31.1x to its Fair Ratio of 43.0x, the stock appears undervalued by this measure, suggesting there may be room for price appreciation if fundamentals hold.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1404 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Micron Technology Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is simply your story about a company. It pairs your personal outlook and assumptions about Micron Technology's future (like revenue growth, profit margins, and industry changes) with a customised financial forecast, ultimately resulting in your own view of the stock’s fair value.

This approach links what you believe about Micron’s future to the numbers behind its valuation, helping you see not just what the company is worth on paper, but why. Narratives are made easy and accessible on Simply Wall St through the Community page, where millions of investors craft and share their perspectives.

With Narratives, you can quickly evaluate whether Micron is a buy or sell by seeing how your Fair Value compares to the current share price. In addition, Narratives update dynamically in real time as major news, earnings, or new forecasts emerge, so your investment thesis always stays relevant.

For example, while one Narrative for Micron Technology assumes aggressive future growth and values the stock at over $200 per share, another is far more cautious, landing at around $95. This shows just how differently investors can interpret the same company story.

Do you think there's more to the story for Micron Technology? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com