Why Micron Technology Rallied 30.5% in June

S of memory giant Micron nology (MU 0. 67%) rallied 30. 5% in June, according to data from S&P Global Market Intelligence

Micron reported earnings late in the month that handily outpaced analyst expectations

Even though the stock fell in the aftermath, there had already been a huge run-up into the earnings report, reflecting a pre-earnings surge in memory pricing

The stellar results have come due to artificial intelligence (AI), which is no surprise

Micron reported a near-50% quarterly increase in its high-bandwidth memory (HBM) used in AI training

Micron got a bit of a late start on HBM, but is rapidly catching up to market leader SK Hynix, while Samsung, the leader in traditional DRAM memory, struggles with its HBM nology

Micron management reiterated it was on track to achieve the same overall market in HBM, as its current overall DRAM by the second half of the year, and that it had now qualified its HBM solutions with four customers across AI GPUs and ASICs

Investors had expected good news, especially as older-generation DDR4 prices skyrocketed over the last couple of months, while HBM prices remain fixed and fitable based on prenegotiated contracts

The DDR4 price spike won't last, however, because it's due to Micron and other memory players "end of life-ing" those DDR4 ducts for newer DDR5

Still, the long-term outlook for DRAM memory appears positive, given the massive demand coming from artificial intelligence systems

Image source: Getty Images

Micron looks expensive, but it may be justified Micron now trades at 22 times earnings, but since the company has been so cyclical in the past, it has usually been better to value Micron based on book value

With the stock now at 2. 75 times book value, that's at the high end of its historical range

MU Price to Book Value data by YCharts That said, things are arguably looking better for Micron than ever before in the age of AI

HBM pricing is more stable than traditional memory and is in perpetual short supply, given that HBM is a primary bottleneck for AI systems today

Furthermore, Micron has surged ahead of its two main rivals in cess nology, with management noting "excellent gress" on its upcoming 1-gamma node

So while Micron's s may look fully valued, the stock may re-rate higher if it can sustain multiple years of better fitability and less cyclicality

Billy Duberstein and/or his clients has positions in Micron nology

The Motley Fool has no position in any of the stocks mentioned

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