Micron’s 87% Margin Is Both A Blessing, And A Curse 🤩🥲✅💪
Micron Technology is enjoying incredible margins amid the memory-chip boom. But the problem is any indication of a peak is taken as a sign to rush to the exit, and that looks to be holding the stock back.
Micron shares rose 3.03% at $1,097.39 on Thursday after the company reported better-than-expected earnings late Wednesday.
Almost every number in Micron’s report was great—revenue, profit, and free cash flow all soared, and the company has locked in a raft of new long-term supply agreements. The only real concern was guidance for its gross margin to drop from 87% in its fiscal fourth quarter to 86.25% in the current quarter.
It’s hardly a crisis. The margin is still sky high; even Nvidia only manages 75% and a big manufacturer like Ford hovers at around 8%. Micron executives said on the earnings call that they expect the gross margin to head upward again after the fiscal first quarter. The dip was put down to a temporary effect from compensation for workers.
But after a nearly sixfold gain in the past 12 months, anything that even hints of a peak is cause for concern and Micron is a victim of its own success in that regard.
“Investors will likely scrutinize the softer gross margin guidance and limited updates on capital allocation, with further details deferred until CHIPS Act restrictions are lifted in December,” wrote William Blair analyst Sebastien Naji in a research note.
But the bigger picture is still rosy for Micron. Most importantly, Micron CEO Sanjay Mehrotra told analysts the industry has no “line of sight” to when supply and demand for memory chips will be balanced again, with the company having already found buyers for 75% of its 2027 supply.
“Customers are now extending supply agreements into 2031 and we think these agreements will prove more durable than many investors fear because most are set in a way that would require pricing to go down well over 70% for customers to consider walking away,” wrote UBS analyst Timothy Arcuri in a research note.
Arcuri reiterated his price target of $1,625 on the stock.
Barron’s previously argued Micron could double in price, when it was trading around $1,100. So long as the memory-chip shortage continues, the company is still on track for gains.
Modify on 2026-10-03 21:49
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
Micron’s Gross Margin Has Nearly Doubled In A Year
Seriously enough, because the profit Micron earns today is new. Its gross margin was 73% over the latest twelve months, against 37% a year earlier. The year before that it was 11.4%, and Micron lost money two and three years ago.
On the September 30 call, management was asked whether margins would change in 2028 from the level it implied for 2027. Management answered that it expects the market to stay tight through 2028, though start-up costs would partly offset higher prices. Its own first-quarter guidance already factors in a double-digit change in cost for both DRAM and NAND memory chips.
What Micron Would Earn At Last Year’s Margin
Micron would earn far less than it does now. It kept 55.9% of its revenue as net income over the latest twelve months, against 18.4% a year earlier. At that earlier margin, the same $90.3 billion of revenue would have produced about $16.6 billion of profit. Micron actually earned $50.5 billion. Lower prices would also mean lower revenue, so that sum is on the generous side.
You pay 24.0 times earnings for the stock, against 21.5 for the S&P 500, but that multiple is on the profit of the latest twelve months. And Micron stock has fallen harder than the market when investors turned cautious. It lost 49% in the 2022 inflation shock, against 24% for the S&P 500.
If Prices Turn, Micron Has Contracts And Cash
More than 75% of Micron’s shipments for the year are already committed, management said. Micron has also signed long-term agreements with customers. About three quarters of the revenue under them has a defined pricing framework, mostly with a floor and a ceiling. The other quarter is open to negotiation or moves with market prices.
Its finances would not be in question either. Micron holds $19.6 billion more cash than debt. Its debt equals 0.5% of its market value, against 21% for the S&P 500. So an end to the shortage would change how much Micron earns, not whether it can pay its way.
Management does not expect the shortage to end soon. Ending the shortage would take new supply arriving faster than demand grows, and Micron’s own Idaho facility is due to produce its first wafers in mid-2027. Micron guided a gross margin of 85.95% at the midpoint for fiscal Q1 2027. A reported margin for that quarter clearly below the guide would be the first sign of the margin slipping from what management expects.