Micron Delivers Record Quarter, Guidance Beats, But Gross Margin Outlook Disappoints
TREE NEWS reports: Micron Technology reported record fiscal 2026 fourth-quarter results and issued first-quarter guidance well above Wall Street expectations, yet its shares swung between gains and losses in after-hours trading as investors focused on a slightly softer gross margin forecast. The company also said AI-driven memory demand continues to strengthen, and it expects DRAM and NAND supply-demand conditions to tighten further in 2027 and 2028 compared with 2026.
For the quarter ended September 3, Micron posted revenue of $54.229 billion, up 31% quarter over quarter and 379% year over year, beating the $51.49 billion consensus. Non-GAAP net income was $38.398 billion, with adjusted earnings per share of $33.42, up 33% sequentially. Gross margin came in at 87.0%, 2.1 percentage points higher than the prior quarter.
Guidance was the bigger headline: Micron expects fiscal first-quarter revenue of $61.5 billion, plus or minus $150 million, versus a $57.02 billion consensus, and non-GAAP EPS of $38.15, plus or minus $1.00, versus $35.40 expected. Both midpoints top analyst estimates. However, the company guided first-quarter gross margin to about 86.25%, below the fourth quarter’s 87% and below the 86.7% analysts expected. CFO Mark Murphy said the first quarter should mark the low point for gross margin in fiscal 2027, with margins improving through the rest of the year as price increases moderate.
Data Center Now a Third of the Business
AI data center demand remains the core growth engine. Core data center revenue reached $18.002 billion in the fourth quarter, up 56% sequentially, representing 33% of total revenue with a 90% gross margin. Cloud storage revenue was $16.283 billion (30% of total), mobile and client revenue was $13.114 billion (24%), and automotive and embedded revenue was $6.824 billion (13%).
By product, DRAM revenue hit $39.8 billion, up 343% year over year and 73% of total revenue, with bit shipments up mid-single digits sequentially and prices up high-single digits on industry supply tightness. NAND revenue reached $14.1 billion, up 526% year over year and 42% sequentially, with bit shipments up about 10% and prices up roughly 30%. High-bandwidth memory (HBM) revenue grew faster than overall company revenue, and Micron said it has locked in agreements for most of its 2027 HBM bit supply at significantly higher prices than in 2026. It is also progressing on HBM4 and working with Nvidia on custom HBM4E products for next-generation GPUs and the NVLink Fusion platform. Data center SSD revenue approached $10 billion, more than 10 times the year-ago level, and accounted for over two-thirds of total NAND revenue.
Supply Constraints Could Persist Beyond 2028
CEO Sanjay Mehrotra said industry demand has strengthened further since the last earnings report and that memory and storage supply-demand will be notably tighter in 2027 and 2028 than in 2026. Micron expects global NAND bit shipment growth in the mid-20% range and DRAM bit shipment growth in the low-20% range over that period, with supply remaining constrained. Notably, the company said that even as the industry adds DRAM cleanroom capacity, it cannot yet determine when supply and demand will rebalance given strong demand and continued customer requests for additional volume.
To reduce the memory industry’s traditional cyclicality, Micron has signed 26 strategic customer agreements expected to cover more than 35% of total revenue through 2030. About three-quarters of that revenue has a pricing framework, mostly with price floors and ceilings, while the remaining quarter is negotiated periodically based on market prices. Customer financial commitments have risen to $32 billion, mostly cash deposits, and the agreements include take-or-pay provisions. Micron’s remaining performance obligations stand at roughly $150 billion, and the company expects related margins to remain well above any prior cycle peak, even at contractual minimum prices.
Capex Rises to Prepare for Post-2028 Capacity
Micron expects fiscal first-quarter capital expenditure of about $11.5 billion, roughly $25 billion in the first half, and further increases in the second half. Management said most of the fiscal 2027 capex increase will fund building and cleanroom construction to accelerate capacity releases in the second half of 2028 and beyond. New fabs do not translate into immediate supply, as ramping from production start to meaningful volume takes several quarters. As a result, the market’s focus in coming quarters is likely to shift from pure demand growth toward the gap between how fast new capacity comes online and how quickly AI memory demand is rising.
Key Takeaways for Investors
- Demand visibility is improving: Strategic agreements covering 35%+ of revenue through 2030, with $32 billion in customer commitments, could reduce Micron’s historical earnings volatility.
- Margin trajectory matters more than the headline beat: The first-quarter gross margin guide came in below expectations, and management’s framing of it as a trough means execution in subsequent quarters will be closely watched.
- Supply remains the swing factor: Micron cannot yet say when DRAM supply-demand will balance, suggesting pricing power could persist — but also that capex is rising and future capacity could eventually pressure prices.
- AI infrastructure spending is still accelerating: HBM, data center SSDs and DRAM pricing all point to sustained demand from AI data centers, with Nvidia collaboration a notable signal.
- Watch the capex-to-supply lag: The gap between new cleanroom construction and actual bit output will determine whether the current tight market extends into 2028 or beyond.
