Why Micron Stock Rocketed 34% Higher in October

Shares of memory chip manufacturer Micron (NASDAQ: MU) soared 33.7% in October, according to data provided by S&P Global Market Intelligence. Soaring prices for dynamic random access memory (DRAM) chips, a result of booming demand for artificial intelligence (AI) infrastructure, was the likely culprit behind Micron's stellar performance.

Image source: Micron.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now, when you join Stock Advisor. See the stocks »

Memory chip prices are rising fast

Top-tier artificial intelligence (AI) accelerators use high-bandwidth memory, or HBM. HBM is a variant of DRAM, and demand for the specialty memory chip is booming. Micron has already signed deals for most of its HBM supply for calendar 2026.

Because memory chip manufacturers are prioritizing HBM production, standard DRAM supply is lagging demand. AI servers, not to mention PCs, smartphones, and other devices, still need plenty of standard DRAM. Micron expects DRAM supply tightness to intensify in 2026.

Already, prices for DRAM are on the rise. Market intelligence provider TrendForce reported that contracts for PC DRAM for the fourth quarter of this year are likely to see a 25% to 30% sequential increase in price, with some early deals already closed with 20% to 25% price increases. Year-over-year price increases for DRAM contracts in the third quarter reportedly topped 170%, according to Taiwanese newspaper Commercial Times.

When per-bit DRAM prices rise, or simply decline more slowly than per-bit production costs, Micron's profits can explode. Micron reported adjusted free cash flow of $3.7 billion in the fourth quarter of fiscal 2025, up by more than 300% from the prior-year period.

Ultimately, it appears that optimism around Micron's role in the AI boom and its soaring profits drove the stock higher in October.

Is Micron stock a buy?

Investors need to be careful with Micron stock. Memory chips are a commodity, and the industry has gone through boom-and-bust cycles since its inception. Periods of undersupply and strong pricing inevitably lead to increased production. Eventually, demand falters, and oversupply pushes prices back down. During the worst downturns, Micron can post enormous losses.

Micron stock looks cheap relative to earnings, trading for around 14 times the average analyst estimate for fiscal 2026. Analysts expect adjusted earnings per share to more than double, which is realistic given surging memory prices. Here's the problem: Micron's earnings do not go up and to the right in a straight line. They can swing wildly and dip into negative territory during downturns. Valuing the company based on peak earnings is a recipe for disappointment.

No one knows how long the AI boom will last. But every single period like this in Micron's history, with soaring prices and booming profits, has eventually given way to a downturn. This time will be no different. That doesn't mean Micron can't be a good investment right now. It's just that investors need to know what they're getting into.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.