Micron Technology recently showcased impressive fiscal third-quarter results, reporting significant growth in revenue and profits. Following the release of its earnings on June 24, the stock initially saw a remarkable surge, although it has since retraced much of those gains. Nevertheless, Micron’s stock is still up approximately 236% year-to-date.
Micron stands as one of the leading manufacturers in the DRAM (dynamic random-access memory) sector, capitalizing on soaring prices for both DRAM and NAND (flash) memory. This growth is largely attributed to the ongoing build-out of data centers, with over 75% of Micron’s revenue derived from its DRAM products, complemented by its NAND sales.
The escalating demand in the DRAM market is significantly driven by the increasing need for high-bandwidth memory (HBM), particularly as it is often packaged with AI chips like graphics processing units (GPUs) to maximize performance. Micron has highlighted that the inference market, which requires even more memory than AI model training, is further intensifying demand. The company has already booked its HBM supply through 2027 and into 2028, anticipating that the total addressable market could reach $100 billion by 2027.
The outlook for both DRAM and NAND markets remains robust, with Micron predicting that demand will continue to substantially exceed supply. The company has indicated that supply challenges, especially for HBM and DRAM, are “severe,” prompting an increase in its capital expenditure budget to $27 billion for the fiscal year as it embarks on new projects aimed at expanding its manufacturing capabilities.
In terms of financial performance, Micron reported impressive results for the fiscal third quarter, with revenue soaring from $9.3 billion to $41.5 billion, comfortably surpassing the consensus estimate of $35.8 billion. Cloud memory revenue saw a remarkable fourfold increase to $13.8 billion, while core data center revenue rose from $1.5 billion to $11.5 billion year-over-year. Additionally, mobile revenue climbed from $3.3 billion to $11.5 billion, and automotive and embedded revenue grew from $1.1 billion to $4.6 billion. Gross margins also improved significantly, reaching 84.6%, up from 37.7% a year ago and from 74.4% in the previous quarter. Adjusted earnings per share (EPS) came in at $24.67, a substantial increase from $1.68 a year earlier, and exceeding analysts’ expectations of $20.78.
Looking ahead, Micron has provided guidance for a strong fiscal fourth quarter, forecasting revenue of around $50 billion and gross margins of approximately 86%. The company anticipates an adjusted EPS of about $30.73 at the midpoint.
Considering the current market valuation, Micron’s stock appears to be an attractive investment. Despite the surge in revenue and expanding gross margins, the stock is trading at a forward price-to-earnings (P/E) ratio of just 7 times fiscal 2027 analyst estimates. While the industry has traditionally exhibited cyclical booms and busts, Micron currently has about 40% of its revenue secured through long-term strategic customer agreements. Furthermore, with no immediate signs that supply and demand will achieve balance, particularly in light of increased AI infrastructure spending, the investment case for Micron looks promising at present levels.
