Micron (MU.US) Earnings Blowout but Stock Volatile: Memory Supercycle Far from Peaking, Why Isn’t the Market Excited Anymore?

According to Zhitong Finance APP, after the US stock market closed on Thursday Eastern Time, Micron Technology (MU.US) ended its fiscal year 2026 with an almost impeccable financial report.

The report shows that the company's fourth-quarter revenue was $54.23 billion, a year-on-year increase of 379% and a quarter-on-quarter increase of 31%, marking six consecutive quarters of record highs. Adjusted earnings per share reached $33.42, more than ten times higher year-on-year. Gross margin climbed to 87%, up 2.1 percentage points from the previous quarter. For the full fiscal year, Micron’s total revenue hit $133.19 billion, 3.5 times the record level set in the previous year, with data center revenue up fourfold year-on-year. DRAM annual revenue surpassed $100 billion for the first time.

The guidance for the next quarter also far exceeded expectations: the median revenue guidance is $61.5 billion, higher than Wall Street’s expectation of $57.57 billion. The median adjusted EPS guidance is $38.15, higher than Wall Street’s expectation of $35.81.

However, after the financial report was released, Micron's share price rose by about 2% in after-hours trading, then quickly turned negative, swinging back and forth in a tug-of-war between bulls and bears. As of press time, the stock was trading around $1,060 premarket, down about 0.5%.

Why did an almost "perfect" financial report fail to ignite market enthusiasm?

Strength of Results: More Than Just the Numbers

The strength of Micron’s report is first reflected in the qualitative change of its revenue structure. In the fourth quarter, core Data Center Business Unit (CDBU) revenue reached $18 billion, a quarter-on-quarter increase of 56%, with a gross margin as high as 90% and a year-on-year growth of over tenfold. AI server demand was the main driver.

Currently, the data center business accounts for 33% of the company’s total revenue, while cloud storage business accounts for $16.3 billion, or 30%, with both together exceeding 60% of total revenue. In DRAM, revenue reached $39.8 billion, an increase of 343% year-on-year, with bit shipments up by mid-single digits quarter-on-quarter but prices rising by high single digits, indicating that growth was mainly price-driven instead of merely shipment stacking. This reflects an extremely tight industry supply and demand situation. NAND revenue was $14.1 billion, up 526% year-on-year and 42% quarter-on-quarter; bit shipments increased about 10%, with prices up about 30%, further highlighting the severity of supply bottlenecks.

It's also worth noting that Micron disclosed key information about future capacity during the conference call: Over 75% of fiscal year 2027’s shipments have been secured through long-term agreements. Strategic Customer Agreements (SCA) increased from 16 last quarter to 26, with total customer prepayments rising from $22 billion to $32 billion. Remaining performance obligations (RPOs) reached about $150 billion, up significantly from the approximately $100 billion last quarter. These agreements are expected to cover over 35% of Micron’s revenue through 2030, about three-quarters of which already have a defined pricing framework, most with price corridors, and some agreements even extend into 2031.

In terms of capital expenditure, Micron announced that capital spending for the first half of fiscal 2027 is about $25 billion, including about $11.5 billion in the first quarter, with continued increases in the second half—most incremental spending will be on new wafer fabs rather than just equipment purchases. Regarding capacity commissioning, the first Idaho factory is expected to start production ahead of schedule in mid-calendar year 2027. The Singapore plant is expected to begin output in the second half of calendar year 2028, Hiroshima cleanroom completion is advanced to year-end 2028, and the New York plant has already broken ground.

Chief Financial Officer Mark Murphy revealed on the call that Q4 generated $44 billion in operating cash flow and $33.2 billion in free cash flow, pledging that all excess future cash will be returned to shareholders.

Memory Is Defining the Boundaries of AI

Micron CEO Sanjay Mehrotra described the current industry transformation on the call as: “Super intelligence is creating the most compelling opportunities in Micron’s history.” This statement is hardly empty rhetoric.

From an industry logic perspective, the expansion of AI model size brings not only increased demand for computing power but also exponential growth in memory capacity and bandwidth requirements. Mehrotra pointed out that running AI applications on platforms with stronger memory capabilities enables more scalable growth and improves the end-user experience. In other words, storage is not only a critical part of AI infrastructure but also a key factor in determining the upper limit of an AI system’s capability.

In the HBM field, Micron has worked with Nvidia (NVDA.US) to develop the industry’s first custom HBM solution. In the first quarter of 2026, Micron started mass production of HBM4 12-stack 36GB products for Nvidia’s Vera Rubin platform, achieving over 2.8TB/s of bandwidth. Mehrotra disclosed that most HBM supply for 2027 has already been contracted, “with prices rising sharply year-over-year, narrowing the gross margin gap between HBM and traditional DRAM.” This means HBM is shifting from “strategic investment” to “profit contribution.”

In the longer term, Mehrotra outlined a new growth engine for “Physical AI” on the call. He emphasized that Level 4 and higher autonomous vehicles typically require over 200GB of memory and several terabytes of storage—an order of magnitude higher than current L2+/L3 levels; humanoid robots are expected to require similar amounts. He highlighted that by the end of this century, Physical AI will become a critical driver of memory demand.

JPMorgan’s pre-earnings supply-demand analysis shows that the HBM market’s supply gap for 2026, 2027, and 2028 will be 20%, 19%, and 16% respectively, with a cumulative shortage through 2028 reaching 23 weeks. Citigroup’s analysis is even more aggressive, forecasting the supply gap to widen from -21% in 2027 to -36% in 2028. Deutsche Bank estimates further widening of the DRAM supply gap in 2027 and 2028, with the market likely not reaching equilibrium until 2029.

All this data points to the same conclusion: AI-driven storage demand has entered a stage of structural rather than cyclical shortage.

Why Is the Stock Price Oscillating?

Given such strong fundamentals, why has Micron’s stock price barely moved?

First, gross margin guidance has acted as a short-term “brake” on market sentiment. Q4’s 87% gross margin did beat analyst expectations (86.9%), but next quarter’s guidance is about 86.25%, below the market’s anticipated 87.4%. CFO Murphy explained that Q1 will be the low point for gross margin in fiscal 2027, mainly due to higher-cost inventory sales and higher compensation expenses; gross margin should recover in subsequent quarters, although price increases will moderate. With expectations already sky-high, even a 0.45 percentage point miss is sufficient to trigger some profit-taking.

Second, the significant jump in capital expenditures overshadowed the positive financial surprises. The market began to worry that Micron is shifting from a “gross margin expansion model” to a “capacity expansion model.” Some analysts pointed out that as financial performance continues to surpass expectations, Micron’s stock may consolidate, no longer surging simply on good results. Significant capital expenditure increases mean higher future depreciation and possible structural pressure on profit margins—an important factor constraining the short-term stock price. Other views indicated that the news of “increased capital spending” outweighed the financial report’s upside after-hours.

Goldman Sachs analyst James Schneider’s team noted in their latest report that Micron’s latest results and next quarter guidance both significantly exceeded Wall Street expectations. At the same time, the company disclosed more long-term customer contracts and a major upgrade to capital expenditure plans—factors that may support moderate stock gains. However, slightly lower gross margin than Goldman expected, coupled with already lofty investor expectations, limits further valuation upside.

From an investor perspective—which may be the key reason—the market’s focus is shifting from “how hot is the cycle” to “how long can the boom last.” Morgan Stanley pointed out after the results that market attention is shifting, with investors now examining whether this super-cycle can be sustained past 2028, rather than just how strong the current numbers are. Micron’s stock has surged this year, and the upside from better-than-expected results is largely priced in. Despite strong fundamentals, Micron is trading at around 7x forward earnings, far below the roughly 10x average of the past two years, as market expectations for slower growth in fiscal 2027-2028 are partly reflected in valuations.

In addition, expectations management may have reached the point where “beating expectations is not enough.” Some analysis noted that analysts now treat Micron routinely beating its own guidance as normal; what the market wants is “beating the beats.” Options market data shows that in the past ten earnings reports, Micron’s stock moved an average of 9.4% the next day (with a median of 9.1%), but options for this report only implied a move of around 6.3%, indicating sharply lowered expectations for post-earnings volatility.

Goldman Sachs maintained a “Neutral” rating after the report but raised the target price from $1,100 to $1,250, based on an 18x multiple and normalized EPS of $70. The Schneider team concluded that risk/reward is roughly balanced at current levels, but if industry supply discipline holds through 2028 and beyond, they would consider a more positive stance on Micron.

In fact, the significance of this Micron earnings report goes beyond the performance of a single company. The core message is: the demand for storage driven by AI infrastructure construction is not just a short-term spike but a long-term structural trend that could last through 2028 and possibly beyond.

But for investors, the challenge is this: once strong fundamentals are consensus, excess returns are no longer generated by confirming the boom itself but by judging whether the cycle’s longevity is underestimated. The current valuation at around 7x forward P/E reflects both market concerns about slowing growth and the potential for undervalued long-term prospects.