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DRAM investors say this time is different. Given how much Micron is spending, it better be.
One of the biggest winners in the stock market over the past year has been Micron Technology (MU +2.59%). The company, which makes both DRAM memory and NAND flash storage, has seen its stock rise nearly 300% over the past year as a generational memory and storage shortage took hold.
This week, The Wall Street Journal published a story elaborating on Micron's massive spending plans to expand capacity. All in all, the memory giant plans to spend upwards of $200 billion on new memory fabs in the U.S. alone, with tens of billions more to be spent overseas this decade.
While the market is currently cheering, should Micron's massive spending plans serve as a warning to investors?
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Micron accelerates growthSometime last summer, the artificial intelligence (AI) industry moved from training to inference, and large hyperscalers began announcing massive projects to serve AI labs like OpenAI and Anthropic. As a result, memory demand shot through the roof...and has stayed there.
According to Counterpoint Research, prices for both memory and NAND storage have surged by more than 90% in the first quarter alone and are forecast to increase another 20% in the second quarter.
In response, Micron has accelerated its DRAM fab expansion plans. These include two new fabs in Idaho, the state where Micron's headquarters is located, which will cost a combined $50 billion. Micron is also working on a whopping $100 billion facility near Syracuse, New York. Add $50 billion in additional research and development investment, and that brings the total to $200 billion in the U.S. over an unspecified number of years.
For good measure, Micron also announced a near-$10 billion investment in Hiroshima, Japan, and also recently announced its intention to purchase an existing fab in Taiwan.
The U.S. investments were announced back in June 2025 as part of Micron's commitment to reshoring 40% of its DRAM manufacturing to the U.S. over time. However, with memory prices rising sharply since then, Micron appears to be accelerating its plans for the second Idaho fab.
Will this lead to a bust?Why might Micron's plans be nerve-wracking for customers? After all, if Micron can make more chips, it would theoretically make more money.
But this is how many cyclical companies get into trouble. Amid rising prices, cyclical companies often increase investment to grow supply. However, in many instances, shortages lead customers to double- and triple-order, artificially inflating demand. When a new supply comes online, demand often ebbs, leading to a glut and a price crash.
For instance, during the COVID-19 pandemic, the stay-at-home memory demand boom turned into one of the more severe busts in the industry's history once the pandemic ended and interest rates rose.
So, could Micron and the memory players be setting themselves up for an epic crash?
Image source: Getty Images.
How this time (might be) differentThe reason Micron shareholders may want to hold through this period is two-fold: First, the artificial intelligence build-out may be unlike prior technology booms; second, Micron may earn a decent portion of its entire market cap in a very short period of time, before these new fabs even have a chance to relieve the undersupply.
On that first note, the current AI boom depends on a new type of DRAM, called high-bandwidth memory (HBM), which is composed of stacked DRAM modules connected via through-silicon vias.
Demand for HBM currently seems inelastic, meaning that, within reason, AI leaders will have to purchase HBM in huge quantities to remain competitive in the AI race, no matter the price.
HBM also takes 3 to 4 times the capital equipment per bit to produce than traditional DRAM. Therefore, it is much harder to increase HBM supply dramatically. DRAM companies have shifted some equipment from traditional DRAM to HBM, but this has only reduced the supply of traditional DRAM, which is also seeing increased demand from AI diffusion into PCs, phones, and inference applications.
Inelastic demand combined with increased capital intensity has made it structurally harder to increase supply unless new fabs are built, and that will take at least two years, with volume supply ramps taking even longer. So, the emergence of HBM has made this boom different.
Micron will earn a lot of its market cap before new supply comes onlineAnalysts expect Micron to earn $33.92 per share this fiscal year ending in August and then $44.55 per share in fiscal 2027. However, these are average estimates that I'd expect Micron to easily beat, given the massive guidance beat last quarter and reports of 90%-plus price increases this quarter alone. The highest estimates for 2026 and 2027 are $41.89 and $63.01 per share, respectively. With the stock at around $415 as of this writing, those two years of earnings alone could exceed 25% of Micron's current market cap.
Meanwhile, there is no guarantee that the supply coming online in 2028 will bring prices back down to former levels. Even if prices per bit come down somewhat from high levels, Micron will also be selling more bits. So, one can easily envision Micron's earnings flattening out but not crashing, even when new supply comes online.
Only one factor needs to remainThe bullish scenario outlined here is, of course, predicated on demand for HBM remaining strong. The inelastic nature of that demand and its capital intensity is the key to this new normal in the memory markets. Therefore, if the industry develops a lower-cost alternative to HBM or AI scaling hits a wall, meaning there is less incremental AI improvement with additional compute, that could throw a wrench into Micron's bull case.
So, those are two risks to watch out for. Yet, as it stands today, neither risk appears imminent. Therefore, investors can continue to hold Micron stock today with confidence.