Acer's CEO Has a Warning for Micron Technology Investors

Shares of Micron Technology (NASDAQ:MU) have surged 570% over the past year, as insatiable demand for memory and storage products has translated into terrific revenue and profit growth for the tech company. It's been able to raise prices due to a shortage of the products it sells.

Micron's stock appears cheap to investors, but that also depends heavily on the outlook for the ongoing shortage. And according to Acer's CEO, Micron may not be able to count on price hikes for too much longer.

Why the shortage may not last until 2030

Acer CEO Jason Chen recently called into question the expectation that the ongoing shortage in memory products will continue until the end of the decade, and questioned whether price increases will be justifiable. Chen says that while some prices have been going up, others have been coming down. And that with China's production capacity increasing, fears of a shortage lasting until 2030 are overblown, and that companies are simply trying to protect their margins.

For Micron investors, it's a concerning warning because, if it's true, it could undermine the very reason for investing in the company. If the shortage doesn't end up lasting as long as feared and Micron isn't able to continually raise prices -- or worse, prices come down -- then the tech stock could quickly fall into a tailspin. Micron's business has historically been cyclical, and volatility has followed it. Many investors who are bullish on the stock believe that this time is different and that demand for all things related to artificial intelligence is so tremendous that the shortage won't end anytime soon.

Micron is a risky stock, despite its seemingly low earnings multiple

Given its massive earnings growth, Micron's stock doesn't appear expensive, as analysts believe there's much more growth ahead. The tech stock is trading at a forward price-to-earnings (P/E) multiple of just seven. That's based on projections of its future profits, based on analyst expectations.

However, if analysts come to the realization that the memory shortage won't last as long as expected, then that can result in lower earnings growth expectations, and a suddenly dirt cheap forward P/E multiple may begin to look a whole lot more expensive.

The danger with relying on expectations, whether they're from analysts or industry experts, is that they can and will change. With Micron's stock, expectations play a large role in its share price. Those who believe the insatiable growth will go on for years think the stock is a bargain, while those who are a bit more skeptical about its ability to continually raise prices, avoid the stock despite its cheap-looking valuation -- and that's the camp I fall into.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.