Key Points

• Micron has become a massive winner in the current memory supercycle, and it will likely report blowout earnings for its fiscal Q4.

• Lagging behind in HBM production has actually benefited Micron, but that could start to catch up to the company in the future.

• 10 stocks we like better than Micron Technology ›

If you've been watching the latest season of the hit TV series Ted Lasso, you know the show has taken AFC Richmond's "Believe" motto and added the word "and" for the new women's team he manages. It's a riff on the axiom among improv actors to always say "Yes and..." during a performance. One reason is that "Believe" alone won't always get you the results you want.

In the same vein, I "believe" that Micron Technology (NASDAQ: MU) is going to crush earnings when the company reports its fiscal Q4 earnings after the bell on Wednesday, Sept. 30 ... "and" it won't matter for the artificial intelligence (AI) stock. So if you're expecting the stock to soar on a great earnings report and near-term guidance, don't hold your breathe.

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A memory supercycle

Micron is one of the big three memory makers, along with Korean competitors SK Hynix (NASDAQ: SKHY) and Samsung (OTC: SSNLF). Last quarter, it derived about three-quarters of its revenue from DRAM (dynamic random access memory) and a quarter from NAND (flash).

Currently, there is a significant supply-demand imbalance in the memory market, which has been driving consistently rising prices for both DRAM and NAND. On the demand side, there is a huge need for high-end DRAM called high-bandwidth memory (HBM), which is packaged with graphics processing units (GPUs) and other AI chips to reduce latency and optimize performance. Demand is so insatiable that the big AI chip companies have rushed to sign massive, multi-year supply agreements with the big-three memory makers to secure future HBM supply for their chips.

On the NAND side, demand is also being driven by AI. While DRAM memory is volatile, meaning it gets erased when the power shuts off, flash memory is for long-term storage. For AI model training, training data needs to be stored, and one solution is massive solid-state drives (SSDs) that use NAND. As such, as AI models grow, the need for flash memory is surging.

At the same time, while memory demand is soaring, supply remains constrained. For DRAM, there are a few reasons for this. First, HBM is competing for the same extreme ultraviolet (EUV) lithography machines used to make critical components of advanced logic chips, such as GPUs and CPUs (central processing units), and ASML is the only company in the world with the technology to make these machines. That creates a bottleneck right at the foundation. HBM also requires upwards of three times the wafer capacity of conventional DRAM, and it can take years to build new cleanrooms. For NAND, meanwhile, supply constraints stem from the big three memory companies reallocating cleanroom floor space and directing most of their efforts toward higher-margin HBM.

Expect to see massive growth in fiscal Q4

The current market dynamics have been a huge windfall for Micron. The company is the third-largest maker of DRAM and NAND, with a 24% and 15% market share, respectively, in Q2, according to Counterpoint Research. However, among the big three memory makers, it gets the least revenue from HBM, with only an 18% share versus 50% for SK Hynix and 33% for Samsung.

Ironically, though, this has made Micron one of the biggest beneficiaries of the current cycle, because HBM pulling supply away from ordinary DRAM has caused conventional DRAM prices to surge even more than already pricey HBM. Both DRAM and NAND prices have steadily risen throughout the year, reaching record highs in August. This is a strong indication that Micron will post another blowout quarter for its fiscal Q4 ended Aug. 31.

However, this likely won't matter. Investors already know Micron is well-positioned for another strong quarter, while they are increasingly becoming wary of when the memory supercycle may end. Given that it trails in HBM, Micron is more exposed to a pullback in ordinary DRAM and NAND prices.

The memory market has historically been very cyclical, and investors will be looking for signs from management about how long the cycle will last, but even then, they are likely to take management commentary with a grain of salt. This was already evident after NAND maker Sandisk's analyst day, when Wedbush analyst Matt Bryson said he was skeptical of some of the company's assumptions.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML and Micron Technology. The Motley Fool has a disclosure policy.