A significant vote of confidence from Wall Street has turned heads back toward Micron Technology (NASDAQ: MU). Morgan Stanley recently boosted its price target on the memory chip maker to a remarkable $338, reinforcing its Overweight rating and signaling conviction in the stock's continued ascent.

This move is more than an upgrade—it’s an acknowledgment of a powerful dynamic reshaping the semiconductor sector: the AI-driven memory supercycle.

The memory industry has long been defined by its notoriously volatile boom-and-bust cycles.

As recently as 2023, the sector was in a deep downturn, with collapsing demand from the post-pandemic PC and smartphone slump leading to oversupply and financial losses. 

But the current cycle is proving to be different.

The driver this time is not a temporary product refresh but a structural, sustained demand from artificial intelligence (AI) infrastructure, which requires unprecedented amounts of high-performance memory to function.

This fundamental shift is creating a new set of rules for the industry, with Micron positioned squarely at the center.

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HBM's Supply Squeeze: Micron's Secret Weapon

At the heart of the AI revolution is a specialized product called High-Bandwidth Memory (HBM). HBM is a crucial component in the powerful graphics processing units (GPUs) that train and run AI models. It works by stacking DRAM chips vertically, like floors in a skyscraper, and connecting them with thousands of data pathways.

This architecture enables dramatically faster data transfer speeds, which are essential for feeding massive AI models. 

However, this complexity comes at a high cost to manufacturing capacity. 

Producing a gigabit of HBM is far more silicon-intensive than producing a gigabit of conventional DDR5 DRAM, the memory found in most servers, PCs, and phones.

The intricate vertical stacking and the larger base logic die required for HBM mean it consumes significantly more wafer space.

As Micron and its competitors pivot their limited, high-end production lines to meet the incredibly profitable demand for HBM, they crowd out manufacturing capacity for standard memory.

This dynamic creates a powerful ripple effect. The AI boom is creating a supply shortage not just in the high-end HBM segment but across the entire memory landscape. With less factory space available for DDR5, prices for memory used in traditional data centers, PCs, and mobile devices are also being driven higher. This is a classic case of a rising tide lifting all boats, and it is a key reason why the current cycle is so powerful for Micron's entire business.

How Pricing Power Fuels Micron’s Rise

This supply-side theory is already translating into tangible, record-breaking financial performance. The evidence is clear in Micron's fiscal Q4 2025 results, which demonstrate how effectively the company is capitalizing on this favorable market environment.

• Record-Breaking Revenue: For the fiscal year ending in August 2025, Micron reported total revenue of $37.4 billion, a massive 49% increase from the previous year. This growth is a direct reflection of higher shipment volumes and, more importantly, stronger pricing.
• Explosive Profitability: The most powerful indicator of pricing power is gross margin expansion. After suffering from negative margins during the 2023 downturn, Micron’s non-GAAP gross margin soared from 22% in fiscal 2024 to 41% in fiscal 2025. Even more telling is the company's forecast for the first quarter of fiscal 2026, which projects margins of 51.5%—a level of profitability not seen in years.
• AI as the Core Driver: The engine behind this growth is undeniable. Micron's Data Center business, which includes HBM and other high-performance server products, now accounts for 56% of the company's total revenue, underscoring that the AI build-out is the primary driver of these record results.

 

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Building a Moat: The Multi-Year Supply Lag

For investors, the key question is sustainability. The supply side of the equation provides the most straightforward argument for why this cycle has a multi-year runway. Building advanced semiconductor fabrication plants, or fabs, is one of the most complex and expensive industrial undertakings in the world, providing a natural barrier that prevents supply from catching up to demand overnight.

These fabs are multi-billion-dollar projects that take years to construct, equip, and ramp to volume production. Micron's own U.S. expansion plans, supported by the CHIPS Act, provide a perfect illustration of this structural lag. The company's new leading-edge fab in Boise, Idaho, which is currently under construction, is not expected to produce its first commercial wafers until the second half of 2027. The even larger-scale project planned for Clay, New York, will only begin ramping up its production after the second Idaho fab is complete, placing its significant output closer to the 2030 timeframe.

This multi-year gap between capital investment and actual wafer output creates a durable window where demand from AI and other markets is likely to continue outstripping the industry's ability to supply it. For Micron, this structural delay acts as a moat, protecting the favorable pricing environment that is driving its record profitability. While the memory business will always have its cycles, the robust and sustained demand from AI, combined with a structurally slow supply response, suggests that the current boom is built on a stronger and more durable foundation than those of the past.

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