To The Moon

Forget the Sell-Off: Micron Proves the AI Feast Is Just Beginning

$Micron Technology(MU)$  , the US memory hegemon, the world's third largest DRAM maker, and fourth largest NAND manufacturer, released its FY2026 Q1 earnings after the bell. Although the market reaction to $Oracle(ORCL)$   and $Broadcom(AVGO)$   was poor last week, Micron handed in a report and guidance that far exceeded market expectations.

Three Things to Watch

Management Raises 2028 HBM Market Forecast, Hitting the $100 Billion Mark Two Years Early

Since HBM is often bundled with AI chip shipments, HBM capacity to some extent influences AI chip volume. In this report, Micron did not disclose specific HBM revenue figures, stating only that it was higher than the previous quarter's $2 billion. However, management released extremely optimistic guidance. Micron's HBM4 product is expected to begin ramping next quarter, and the entire 2026 HBM capacity is already sold out.

Management expects the 2025 HBM TAM (Total Addressable Market) to exceed $35 billion and grow to $100 billion by 2028 (a CAGR of 40%+). This hits the $100 billion milestone two years ahead of schedule. By 2028, the HBM TAM alone will exceed the size of the entire DRAM market in 2024.

Non HBM Price Hikes Are Sustainable; The Bottleneck is Cleanrooms, Not Equipment

In the non HBM business, Micron began sampling the highly anticipated LP SOCAMM2 product this quarter. Meanwhile, data center NAND revenue topped $1 billion, driven by strong SSD demand. Micron also launched the industry's first PCIe Gen6 SSD, which is currently undergoing validation with hyperscalers.

Management expects DRAM and NAND supply shortages to persist beyond 2026. The primary constraint on capacity is cleanroom space rather than equipment. Micron is currently discussing multi year contracts involving both DRAM and NAND with several key customers. These contracts are distinctly different from previous LTAs (Long Term Agreements) as they contain specific commitments and stronger contractual structures.

Non HBM Margins Rising Fast, Driving Record Overall Gross Margins

Prior to this pricing cycle, Micron's gross margins were primarily pulled up by the growth of the HBM business which boasts margins of 60%+. This quarter, gross margin rose to 56%. Looking back at Micron's FY2018 super cycle, traditional DRAM and NAND businesses were able to support an overall corporate gross margin rising to 61% even without an HBM business. The guidance of 68% gross margin given for next quarter shocked the market, highlighting the dramatic climb in profitability for the non HBM business.

FQ1 Key Financial Highlights

~Revenue: $13.64 billion, up 57% YoY and 21% QoQ, beating the consensus of $12.92 billion.

~Gross Margin: GAAP: 56%, up 17.6 percentage points YoY and 11.3 percentage points QoQ, beating the consensus of 51%. Non GAAP: 56.8%, up 17.3 percentage points YoY and 11.1 percentage points QoQ, beating the consensus of 51.8%.

~Net Income: GAAP: $5.24 billion, up 180% YoY and 64% QoQ, beating the consensus of $4.33 billion. Non GAAP: $5.48 billion, up 169% YoY and 58% QoQ, beating the consensus of $4.57 billion.

FQ1 Revenue Breakdown by Platform

~Compute & Networking (CMBU): Representing cloud customer DRAM and overall data center HBM. Revenue was $5.28 billion, up 100% YoY and 16% QoQ. It accounted for 39% of revenue with a gross margin of 66% (up 7 percentage points QoQ).

~Storage (CDBU): Representing OEM customer data center DRAM and overall data center NAND. Revenue was $2.38 billion, up 4% YoY and 51% QoQ. It accounted for 17% of revenue with a gross margin of 51% (up 10 percentage points QoQ).

~Mobile (MCBU): Representing mobile/PC DRAM and NAND. Revenue was $4.26 billion, up 63% YoY and 13% QoQ. It accounted for 31% of revenue with a gross margin of 54% (up 18 percentage points QoQ).

~Embedded (AEBU): Representing automotive, industrial, and consumer DRAM/NAND. Revenue was $1.72 billion, up 49% YoY and 20% QoQ. It accounted for 13% of revenue with a gross margin of 45% (up 14 percentage points QoQ).

FY26Q2 Guidance

~Revenue: Expected to be $18.7 billion, up 132% YoY and 37% QoQ.

~GAAP Gross Margin: 67%, up 30.2 percentage points YoY and 11 percentage points QoQ.

~Non GAAP Gross Margin: 68%, up 30.1 percentage points YoY and 11.2 percentage points QoQ.

~GAAP Net Income: $9.34 billion, up 490% YoY and 78% QoQ.

~Non GAAP Net Income: $9.68 billion, up 443% YoY and 77% QoQ.

Summary

Overall, while the market remains worried about an AI bubble triggering a continued sell off in the semiconductor sector, Micron's earnings report confirms that we will see stronger AI semiconductor performance realization next year. The strong AI semiconductor results we are seeing this year may just be the appetizer.

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