Micron Technology, Inc. (MU.US) explodes performance, driving Wall Street crazy with bullish sentiment! AI demand is hot and long-term agreements support growth prospects.

After the storage chip giant Micron Technology, Inc. (MU.US) announced its explosive performance for the third quarter, several major Wall Street banks have given optimistic assessments of the stock. Micron Technology, Inc.'s Q3 performance explodes! Revenue more than triples, gross margin of 84.9% surpasses NVIDIA Corporation and Meta According to the financial report, Micron Technology, Inc. achieved revenue of $41.46 billion in the third quarter, a year-on-year increase of 346% and a quarter-on-quarter increase of 74%. This number far exceeded analysts' expectations of $35.69 billion, and also set a record for Micron Technology, Inc.'s fifth consecutive quarter of record revenue. In terms of profitability, its performance was even more impressive: adjusted earnings per share reached $25.11, exceeding the market consensus of $20.49 by a significant $4.62; net profit also increased by over 100% to $28.24 billion. The market was most excited about the leap in gross margin. Compared to 74.9% in the previous quarter, Micron Technology, Inc.'s adjusted gross margin for this quarter soared to 84.9%, more than doubling year-on-year. By comparison, the gross margin for the latest quarter of social media giant Meta (META.US) was 81.9%, and that of AI chip dominator NVIDIA Corporation (NVDA.US) was 75%. In the third quarter, Micron Technology, Inc.'s core data center revenue was $11.52 billion, 7.5 times that of the same period last year and 1.7 times market expectations; cloud storage revenue was $13.77 billion, about four times that of the same period last year, and nearly 30% higher than analyst expectations. The combined revenue of the two businesses was $25.29 billion, accounting for approximately 61% of the company's total revenue. DRAM revenue increased by over three times year-on-year; NAND flash revenue doubled year-on-year; data center business revenue reached a new high again; High Bandwidth Memory (HBM) revenue surpassed $1 billion for the second consecutive quarter. Micron Technology, Inc. stated that AI server demand is driving continued growth in HBM, high-capacity DRAM, and enterprise SSD sales, becoming the core driver of the company's performance growth. For the fourth quarter guidance, Micron Technology, Inc. stated that fourth quarter revenue is expected to be approximately $50 billion, also much higher than analyst expectations of $42.5 billion. In addition, Micron Technology, Inc. is leveraging its current market influence to push customers to sign five-year supply agreements. The company has currently signed 16 such agreements with customers of varying sizes. The agreements include terms such as cash deposits, price ranges, and minimum purchase quantities. While these agreements may limit the upside potential of this hot upward cycle, they may also limit the company's downside risk in future downturn cycles. Sumit Sadana, Chief Business Officer of Micron Technology, Inc., stated: "During the last downturn, investors saw our gross margins drop to negative values, and these long-term supply agreements will completely reshape our gross margin performance for the next five years." Wall Street Banks are Crazy Bullish JPMorgan maintains an "overweight" rating with a target price raised from $550 to $1540 JPMorgan pointed out that the far exceeding performance and guidance, as well as the significant expansion of Strategic Customer Agreements (SCAs), have established a higher and more sustainable profit baseline, and the company plans to shift to large-scale capital return after December 2026, also creating a new value release path for shareholders. The JPMorgan analyst team led by Harlan Sur stated: "The performance and guidance far exceeded the expectations of Wall Street and buy-side institutions before the conference call. But in our view, the more important development is the significant expansion of Micron Technology, Inc.'s Strategic Customer Agreement (SCA) from a 5-year contract announced in the previous quarter to the 16 agreements signed now. In our view, this leap change fundamentally transforms Micron Technology, Inc.'s business model, enabling it to transition from a cyclical commodity manufacturer to a supplier with multi-year contract guarantees, and significantly improving downside protection in revenue and profitability." Morgan Stanley maintains an "overweight" rating with a target price raised from $1050 to $1200 The Morgan Stanley analyst team led by Joseph Moore stated: "Micron Technology, Inc.'s performance and future outlook this quarter were outstanding, but the bigger debate is whether this prosperity is sustainable, and the factors leaning towards the positive. Capital expenditure growth is relatively moderate, and the disclosure of Long-term Agreements (LTA) was better than expected. Although there is obviously a trade-off between short-term upside and long-term sustainability, the execution performance in areas such as enterprise SSDs, High Bandwidth Memory (HBM), and LPDDR5 SOCAMM is very positive." The analysts pointed out that their view is in line with Micron Technology, Inc.'s management, that AI will continue to drive dynamic random access memory (DRAM) demand far exceeding supply levels after 2027. This quarter's performance also affirmed this view, with not only quarterly performance significantly exceeding expectations, but also strong future guidance. Susquehanna maintains a "positive" rating with a target price raised from $1750 to $2000 Susquehanna analyst Mehdi Hosseini stated: "Micron Technology, Inc.'s revenue, earnings per share, and performance guidance announced far exceeded market and buy-side expectations. We are now more confident in Micron Technology, Inc.'s ability to maintain an 80% gross margin in the next year, and also believe more in its ability to maintain an operating profit margin of over 70% in the coming years." "Micron Technology, Inc. raised demand expectations to reflect the growth in inferencing computing demand. Server total shipment growth expectations have been raised to high single digits to close to 20% (previously low double-digit growth), but the company has not quantified the related KV Cache demand." The analysts noted that they believe the sustainability of profit margins comes from the increase in the proportion of contract revenue. The 16 strategic customer agreements already signed cover about one-fifth of the DRAM bit shipments and about one-third of the NAND bit shipments during the contract period. When all planned strategic customer agreements are completed, Micron Technology, Inc. expects more than 50% of total revenue to come from these agreements. Wedbush maintains an "outperform" rating with a target price raised from $1300 to $1400 The Wedbush analyst team led by Matt Bryson stated: "Micron Technology, Inc. once again surpassed market expectations in this quarter's performance, and future performance guidance is significantly higher than consensus expectations. What is truly surprising is Micron Technology, Inc.'s ability to detail the long-term contracts signed for future significant bit capacity. These new agreements seem to provide unprecedented certainty for the company's revenue, margin, and profit capability over a longer period." The analysts noted that while these agreements to some extent limit the cyclical profit peaks they originally thought might occur in the coming years, they also create a longer and unprecedented period of performance visibility. Micron Technology, Inc. currently discloses remaining performance obligations (RPO) of $18 billion; if the company successfully includes about 50% of the capacity into strategic customer agreements, the RPO scale is expected to increase to over $100 billion. Bryson and his team stated that both Micron Technology, Inc. and what they consider peer companies now not only have unprecedented certainty about future cash flows (as a large portion of the business has been locked into long-term contracts), but this visibility also allows Micron Technology, Inc. to use cash flow in a more shareholder-friendly way. The company has announced that beginning this December (after some cash use restrictions in the "Chip Act" expire), 100% of free cash flow (FCF) will be returned to shareholders. The analysts stated: "We believe that this certainty should and will be rewarded by market return through valuation multiple expansion. While this result is already partially reflected in our target price our target price is based on a 9x valuation multiple, while historically industry valuations during peak periods have stayed in the mid-single digits we believe this assumption still has further upside potential, as do Micron Technology, Inc.'s performance forecasts." Citi maintains a "buy" rating with a target price raised from $1200 to $1400 Citi analysts stated: "After the company signed strategic customer agreements, covering about 40% of sales over the next five years, we continue to be bullish on Micron Technology, Inc. Micron Technology, Inc. talked about a shift in its business model that has already occurred due to memory shortages, this situation will continue until 2028, with significantly improved business visibility and sustainability." The analysts added: "These 'buy or pay' contracts include annual purchase commitments, prepayment guarantees, price caps based on C2Q pricing, and price floors negotiated quarterly, allowing the company to achieve gross margins higher than historical cyclical peaks. In our view, this makes the DRAM industry more reliable compared to past cyclical industry models. In addition, Micron Technology, Inc. plans to return 100% of excess cash to shareholders, whereas previously this ratio was only 50%."