Micron (NASDAQ:MU) has spent years being treated as a highly cyclical memory stock. Now, the AI boom has turned that old investment case on its head, creating extraordinary demand for its products and giving the company pricing power that would have been difficult to imagine not long ago. The question is whether this is a structural change or simply another peak in the memory cycle.

The latest results show just how extreme the cycle has become. Micron generated $54.2 billion in quarterly revenue, up 379% year over year, while adjusted gross margin reached a remarkable 87%. The problem for investors is that memory is notoriously cyclical, raising an obvious question: how long can those economics last?

Top investor Victor Dergunov, who ranks among the top 3% of investors on TipRanks, has been bullish on Micron during its ascent but now sees a more complicated setup.

Dergunov argues that Micron could still have substantial upside over the next 12 to 18 months if AI demand remains strong. The company has just delivered another blockbuster quarter, with the huge revenue increase noted above accompanied by a rise in adjusted EPS from $3.03 to $33.42.

Importantly, the guide was just as strong. Micron called for $61.5 billion of first-quarter revenue, plus or minus $1.5 billion, compared with Wall Street expectations of roughly $57.0 billion. It forecast adjusted EPS of $38.15, plus or minus $1, versus expectations of about $35.47.

That’s all well and good, but Dergunov believes the longer-term picture is much less certain. The biggest issue is supply. As additional memory capacity comes online, particularly from Chinese manufacturers, the current shortage could eventually turn into oversupply. If that happens while AI-related demand slows, Micron could lose pricing power and see margins fall sharply.

That concern is particularly relevant because an 87% gross margin is difficult to reconcile with the economics of a cyclical hardware business. Dergunov points out that even software companies known for exceptional profitability typically operate around the 80% to 85% range. Micron expects its adjusted gross margin to dip slightly to 86.25% next quarter, but Dergunov expects a much more substantial decline once the current AI boom cools.

Near term, however, the 5-star investor sees reasons for optimism. Memory shortages remain severe, pricing is strong and earnings expectations continue to rise. Micron is expected to generate roughly $275 billion in fiscal 2027 revenue, with consensus estimates calling for around $314 billion in fiscal 2028.

The problem is the enormous range of forecasts for fiscal 2028. EPS estimates span roughly $136 to more than $335, while revenue estimates range from about $127 billion to nearly $400 billion. For Dergunov, those wide ranges highlight how little certainty there is around Micron’s earnings power once the current memory shortage fades.

Bottom line: Dergunov remains bullish on Micron in the near term, but he sees the longer-term setup as much less attractive. If new memory supply catches up with demand, particularly if AI spending cools, Micron’s pricing power and margins could come under heavy pressure.

As such, Dergunov rates MU stock a Hold. (To watch Dergunov’s track record, click here)

However, on the Street only one analyst joins Dergunov on the sidelines, while an additional 25 Buys add up to a Strong Buy consensus rating. The average price target stands at $1,581.40, implying the stock will gain 47% in the months ahead. (See Micron stock forecast)