Micron is no longer the company it was before the AI boom, and one analyst says it's time that investors fully appreciate that

Micron is expected to report earnings on Wednesday afternoon.

As investors question whether the memory cycle is reaching a peak, one analyst sees a chance for Micron Technology to quiet doubts when it reports earnings later this week.

D.A. Davidson managing director Gil Luria noted that AI companies "across the board have been consistently indicating they do not have nearly the amount of memory they need."

Yet Luria said Micron's stock (MU) is trading as if "the memory cycle is already over." Micron shares trade at just 6.54 times estimated earnings per share for the next 12 months, according to FactSet estimates. For comparison, shares of Advanced Micro Devices (AMD) and Intel (INTC) trade at 44.17 times and 59.06 times, respectively.

The concerns are partly being driven by investors' persistent view of memory as a commodity product, Luria said. Historically, memory chips were seen to be essentially interchangeable between suppliers, with purchasing decisions coming down to price.

But that longstanding view doesn't necessarily line up with the new AI reality, in Luria's view. He thinks Micron is reaching a point where most of its profit "will come from products that do not fit that definition."

The memory-chip maker is one of three major suppliers of high-bandwidth memory, a product that it co-designs with customers to meet their specific AI needs. The company is also working with customers on dynamic random-access memory, which is also stacked to make HBM, as well as NAND, which will all be purchased over the long term, Luria said.

He expects Micron's revenue to eventually also reflect the changing way memory is being bought and sold. The company has signed several long-term agreements with its top customers who want to secure future supply amid ongoing shortages.

"Micron is no longer the same company it was in 2023," he said, referring to the last downcycle for the company, at which point revenue and profits sank due to a decline in demand.

Memory chips are similar to central processing units in the sense that they once had commodity-like aspects as well. The processors can be "bought in the secondary market at a spot price, and are also made by Chinese companies," Luria noted.

But CPUs are experiencing an AI renaissance, and investors seem more upbeat about the potential for multiple years of robust demand in that part of the market than they are for the memory market.

"The memory cycle is The Cycle," Luria wrote. "The related dislocation has to do with investors expecting the memory cycle to be over, while underwriting continued CPU growth through 2030."

When Micron reports earnings on Wednesday, Luria said he expects the results to be ahead of Wall Street's expectations, offering opportunity to start closing the valuation gap between its shares and those of expensive CPU makers.

-Britney Nguyen