The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Robert Cyran

NEW YORK, June 25 (Reuters Breakingviews) - The U.S. state of Idaho is known for potatoes. Not coincidentally, it's also where one of the world’s most valuable chip companies is headquartered. Micron Technologies MU.O, the maker of electronic memory and storage, added another $100 billion or so to its market capitalization on Thursday, taking its worth to $1.3 trillion. This rise, thanks to demand for these semiconductors outweighing supply worldwide, is straining tech giants and investor credulity alike.

Micron was bankrolled by J.R. Simplot, a farmer who made a fortune taming agricultural cycles and turning potatoes into McDonald's fries. His experience, and nearly 20 years on Micron’s board, helped the memory maker ride out similar booms and busts. Decades later, it’s a giant.

The AI boom has led to the biggest upswing ever, as demand for memory created a huge bottleneck. Micron’s quarterly results, revealed on Wednesday, are astonishingly good. The company’s revenue rose to $41.5 billion from $9.3 billion in the same period a year ago. Sellers can largely set prices, as the company’s ballooning gross margin shows.

Micron is optimistic. Chief Executive Sanjay Mehrotra expects tight conditions to persist past 2027, and supply to improve gradually in 2028. Memory chips have become harder to make over the years as transistor size has shrunk. Manufacturing facilities are therefore more complex and costly to build, as well as difficult to staff. It’s anyone’s guess how much memory ever-larger AI systems will demand in a few years.

Yet the company’s valuation, along with similarly-sized producers SK Hynix 000660.KS and Samsung Electronics 005930.KS, presupposes memory cycles are a thing of the past. Micron’s price to earnings ratio over the past two decades has averaged about 10 times. That means, roughly, investors are counting on $130 billion in earnings annually in the future, or ten times as much as it earned last fiscal year.

That’s unlikely. Apple AAPL.O said Thursday it was raising prices of its MacBooks and iPads by substantial amounts, and had “never seen a component price increase this much, this quickly”. Such increases would hit demand. Memory producers are also rushing to invest. South Korea-based SK Hynix, for example, plans to raise $29 billion in the U.S. to build capacity.

Simplot, who became a billionaire thanks to chips and fries, knew boom and bust cycles are built on human greed. It's very hard to resist the urge to keep boosting production when times are good. Historical patterns suggest the memory shortage will likely end suddenly and hard.

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CONTEXT NEWS

Micron Technology said on June 24 that revenue for the quarter ending May 28 was $41.5 billion, compared to $9.3 billion in the same period last year. The memory company earned $28.2 billion, or $24.67 per share, versus $1.9 billion or $1.68 a share a year ago.

In a call with investors, Chief Executive Sanjay Mehrotra said demand for DRAM and NAND memory continues to significantly exceed industry supply, and the company expects tight conditions to persist beyond 2027. He added that supply is anticipated to improve gradually in 2028.

Separately, Apple said on June 25 that it had raised prices on iPads and MacBooks in response to rapid increases in the prices for memory and storage chips. The price of the MacBook Air with 512 gigabytes of storage, for example, rose to $1,299 from $1,099. The company said in a statement to Reuters that "We have never seen a component price increase this much, this quickly.”