Bank of America has named Micron Technology its top stock pick, citing the increasingly strategic role of memory chips in AI infrastructure. As the memory sector evolves from a cyclical commodity business into a strategic core asset for AI, the bank sees significant potential for valuation expansion.

According to Bank of America, memory has become a structural, long-term investment theme. Memory chips now account for approximately 35% to 40% of cloud AI capital expenditure, roughly two to three times historical levels. Despite this dramatic industry shift, memory stocks continue to trade at relatively modest valuations, with forward price-to-earnings ratios of around 10x, below the broader market average.

The bank values Micron using a sum-of-the-parts (SOTP) approach. Its traditional cyclical memory business is valued at 3x estimated FY2028 price-to-book (P/B), implying $1,040 per share, near the upper end of the company's historical valuation range of 0.8x to 3.1x, reflecting expectations of an industry upcycle. Meanwhile, Micron's AI High Bandwidth Memory (HBM) business is valued at 31x estimated FY2028 earnings, in line with the median valuation of comparable AI computing companies.

As memory transitions from a cyclical commodity to a strategic AI asset, Bank of America believes its valuation multiples deserve to expand. However, the bank also highlighted several downside risks, including steeper-than-expected declines in average selling prices (ASPs), intensified competition from emerging Chinese memory manufacturers, market share losses to larger rivals, and weaker demand across key end markets such as data centers, smartphones, and personal computers.

Micron also announced plans to increase its total U.S. investment to more than $250 billion by 2035, while committing up to an additional $3 billion to strengthen the domestic semiconductor supply chain. Following meetings with the company's management, TD Cowen reiterated its Buy rating, noting that manufacturing capacity constraints continue to limit supply while end-market demand remains robust.

Market Insight:

As part of its broader strategy to expand semiconductor manufacturing in the United States, Micron has invested in GlobalWafers, the Taiwan-based leader in silicon wafer manufacturing, providing key financial support for the company's major wafer fabrication facility in Sherman, Texas. Looking ahead, silicon wafer supply could emerge as another critical hardware bottleneck for AI computing infrastructure, with implications for the broader global technology industry.