Micron Technology, Inc. (MU) | The Buildout — AI Infrastructure
The Verdict
Micron designs and manufactures DRAM, NAND flash, and storage products that are essential to the AI infrastructure buildout. Its high-bandwidth memory (HBM) chips are used exclusively in AI accelerators, while its data-center DRAM and SSDs supply the cloud servers and edge devices that run AI workloads.
| Market Cap | — |
| Revenue (TTM) | $90.3B |
| Revenue Growth | +167.0% |
| EBITDA Margin (TTM) | 75.8% |
| Net Cash | $19.6B |
| Earnings Beats | 7 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- HBM4 36GB 12-Hi designed for NVIDIA Vera Rubin; HBM4E ramp on track for CY2027.
- 16 Strategic Customer Agreements (SCAs) signed, with ~$100 billion minimum contracted revenue and $22 billion in customer deposits.
- Segment gross margins ranged from 79% to 87% across all four business units in FQ3 FY2026.
- Data-center revenue annualized run-rate exceeded $100 billion for the first time in FQ3.
- Management can fulfill only 50–66% of key customer demand, driving extreme pricing power.
What We’re Watching
- Taiwan geopolitical risk: majority of DRAM output from Taiwan fabs; diversification not meaningful until at least 2028.
- China CAC restrictions since May 2023 could broaden, limiting market access.
- Massive capex ($27B FY2026, stepping up in FY2027) could overshoot if AI demand moderates.
- PC and smartphone unit volumes declining low-double digits in CY2026 due to memory shortages; sustained high prices risk demand destruction.
The thesis is strengthening: memory has become a gating factor for AI, and Micron's strategic customer agreements are converting cyclical revenue into contracted, multi-year streams with protected margins. The key open question is whether the SCA model can sustain pricing discipline when competitors eventually add capacity, and if the Taiwan risk can be sufficiently diversified before it materializes.
Earnings Beat
Micron reported FQ3 FY2026 revenue of $41.5 billion, up 74% sequentially and 346% year-over-year, with GAAP gross margin of 84.6%. Free cash flow reached a quarterly record of $17.6 billion as pricing power and tight supply drove broad-based profitability.
| Metric | Q3 FY2026 | Q2 FY2026 | Q3 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $41.5B | $23.9B | $9.3B | +345.7% |
| Gross margin | 84.6% | 74.4% | 37.7% | +4690bps |
| EBITDA | $35.7B | $18.4B | $4.3B | +737.4% |
| EPS | $24.67 | $12.10 | $1.68 | +1372.1% |
| Data Center Revenue | $25.3B | $13.4B | n/a | — |
Management tone: Management remained confident and forward-leaning, but was deliberately restrained when discussing SCA terms, declining to provide granular contract details while emphasizing the transformative nature of the agreements.
Management Guidance
For FQ4 FY2026, management guided revenue of $50.0 billion ± $1.0 billion, non-GAAP gross margin of ~86%, non-GAAP operating expenses of ~$1.65 billion, and non-GAAP diluted EPS of $31.00 ± $1.00, with a tax rate of ~15%. FY2026 capital expenditures are expected to be ~$27 billion net of incentives, and FY2027 capex will see a meaningful step-up, with construction-related capex rising by over $10 billion year-over-year. The guidance assumes a 'meaningful moderation in the rate of price increases.'
Trajectory
Revenue has surged from $7.8 billion in Q4 FY2024 to $41.5 billion in Q3 FY2026 as AI-driven demand for HBM and data-center memory overwhelmed supply, pushing DRAM and NAND prices sharply higher. Gross margin expanded from 35% to 85% over the same period, reflecting pricing power and tight capacity. Management expects continued growth, though the rate of price increases is moderating.
The Model
The model projects FY+1 revenue of $230.0 billion and EBITDA of $198.3 billion (86.2% margin), anchored by the current pricing environment and the rollout of strategic customer agreements. FY+2 revenue of $298.0 billion and EBITDA of $251.5 billion (84.4% margin) assume sustained market tightness and gradual volume growth as new fabs begin to contribute output from mid-2027 onward.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $37.4B | $230.0B | $298.0B |
| YoY Growth | — | +515.3% | +29.6% |
| EBITDA | $18.2B | $198.3B | $251.5B |
| EBITDA Margin | 48.8% | 86.2% | 84.4% |
Projections are the median of 5 independent model runs. The model’s revenue sits 7.2% above analyst consensus.
For FQ4 FY2026, management guided revenue of $50.0 billion ± $1.0 billion, non-GAAP gross margin of ~86%, non-GAAP operating expenses of ~$1.65 billion, and non-GAAP diluted EPS of $31.00 ± $1.00, with a tax rate of ~15%. FY2026 capital expenditures are expected to be ~$27 billion net of incentives, and FY2027 capex will see a meaningful step-up, with construction-related capex rising by over $10 billion year-over-year. The guidance assumes a 'meaningful moderation in the rate of price increases.'
What Could Go Right — and Wrong
- Accelerated SCA signings covering over 50% of revenue, transforming earnings visibility and reducing cyclicality.
- HBM4E and 1δ DRAM extend technology leadership, sustaining market share gains against Samsung and SK hynix.
- Capacity expansions (ID1, Tongluo) ramp on schedule, capturing growing demand without oversupply.
- Robust AI capex from hyperscalers continues, with memory demand outrunning supply through 2028.
- NAND tightness persists, with data-center SSD market share gains and HDD displacement.
- Taiwan disruption halts majority of DRAM output, causing severe revenue loss.
- AI infrastructure spending enters a digestion phase, reducing demand and triggering a margin correction.
- Rapid capacity addition by competitors leads to oversupply earlier than expected.
- SCA enforceability proves weaker than assumed, with customers renegotiating or defaulting in a downturn.
- High memory prices permanently shrink PC/smartphone TAMs, reducing long-term demand.
Looking Ahead
The next twelve months are defined by execution on SCAs and the lead-up to new fab capacity. With FQ4 guidance at $50 billion, the near-term focus is on further SCA signings and the balance-sheet impact of $10 billion in deposits arriving in the current quarter. By mid-2027, the first new U.S. fab (ID1) and the Tongluo acquisition are expected to begin wafer output, testing whether supply can begin to ease the extraordinary demand crunch.
- FQ4 FY2026FQ4 Earnings — Tests $50B revenue, 86% gross margin guidance and update on SCA signings.
- FQ4 FY2026Customer Deposits Inflow — $10B in cash deposits from SCAs lands on balance sheet.
- Dec 2026CHIPS Act Restriction Lifts — Opens door to share repurchases alongside organic investment.
- Mid-2027ID1 Fab Initial Output — First new U.S. DRAM fab begins wafer production, adding incremental supply.
- Mid-2027Tongluo Fab Shipments — Meaningful product shipments from acquired Taiwan fab begin.
- CY2027HBM4E Volume Ramp — Next-gen HBM product ramps for next-gen AI accelerators.
Financials
Annual Summary
| Metric | FY2025 | TTM |
|---|---|---|
| Revenue | $37.4B | $90.3B |
| Gross Margin | 39.4% | 72.6% |
| EBITDA | $18.2B | $84.1B |
| EBITDA Margin | 48.8% | 75.8% |
| Net Income | $8.5B | $50.5B |
| Free Cash Flow | $8.9B | $35.3B |
| Net Cash | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)72.6%
- EBITDA Margin (TTM)75.8%
- Net Margin (TTM)55.9%
- ROIC57.8%
- FCF Conversion38.3%
- SBC / Revenue1.3%
The Company
Micron Technology designs and manufactures DRAM, NAND flash, and NOR memory chips, along with solid-state drives and multi-chip packages, under the Micron and Crucial brands. Its memory products are foundational to every tier of the AI stack, from high-bandwidth memory (HBM) for GPU accelerators to high-capacity DDR5 for cloud servers and LPDDR for AI-enabled edge devices.
The company operates its own wafer fabrication plants (fabs) and assembly/test facilities across Taiwan, Singapore, Japan, the United States, Malaysia, China, and India. This vertically integrated model gives Micron direct control over its supply but also requires massive, multi-year capital commitments, with over $27 billion in capex planned for fiscal 2026 alone.
Business Segments
Competitive Landscape
Micron competes with Samsung, SK hynix, and other memory makers in a consolidated industry where the top three control the majority of DRAM supply. In HBM, Micron asserts it has achieved market share parity with its overall DRAM share, and its strategic customer agreements with price floors and deposits represent a first-mover advantage not yet replicated by rivals.
- Samsung ElectronicsNamed in 10-K; primary competitor in DRAM and HBM.
- SK hynixNamed in 10-K; major rival in HBM and DRAM.
- KioxiaNamed in 10-K; competitor in NAND flash memory.
- Named in 10-K; competitor in NAND flash memory.
- CXMTNamed in 10-K; state-backed Chinese DRAM maker, not subject to CAC restrictions.
Supply Chain
Micron sits at the center of the memory supply chain, designing and fabricating its own chips and packaging them into finished products that are sold directly to hyperscale cloud providers, server OEMs, smartphone makers, and automotive companies.