Micron (MU.US) Posts "Explosive" Earnings Yet Stock Swings: Memory Supercycle Far From Peaking, Why Is the Market No Longer Excited?

On Thursday after the U.S. market close, Micron Technology, Inc. (MU.US) closed out its fiscal 2026 with an almost impeccable earnings report. The report showed that in the fourth fiscal quarter, the company's revenue was $54.23 billion, up 379% year over year and 31% quarter over quarter, setting records for six consecutive quarters; adjusted earnings per share were $33.42, up more than tenfold year over year; gross margin climbed to 87%, up 2.1 percentage points from the previous quarter. For the full fiscal year, Micron's total revenue reached $133.19 billion, 3.5 times the record level of the previous fiscal year, with data center revenue quadrupling year over year and full-year DRAM revenue exceeding $100 billion for the first time. Guidance for the next fiscal quarter also far exceeded expectations: the midpoint of revenue guidance was $61.5 billion, above Wall Street's expectation of $57.57 billion; the midpoint of adjusted earnings per share guidance was $38.15, above Wall Street's expectation of $35.81. However, after the earnings release, Micron's stock rose about 2% in after-hours trading before quickly turning lower, seesawing repeatedly between bulls and bears. As of press time, the stock was trading around $1,060 in premarket trading, down about 0.5%. Why did an almost "perfect" earnings report fail to ignite market enthusiasm? Strength of results: more than just numbers The strength of Micron's earnings report is first reflected in the qualitative change in its revenue structure. In the fourth fiscal quarter, revenue from the core data center business unit (CDBU) reached $18 billion, up 56% quarter over quarter, with gross margin as high as 90%, up more than tenfold year over year, with AI server demand as the core driver. The data center business now accounts for 33% of the company's total revenue, while cloud storage business revenue was $16.3 billion, accounting for 30%, with the two together exceeding 60% of total revenue. In DRAM, revenue reached $39.8 billion, up 343% year over year, with bit shipments growing by a mid-single-digit percentage quarter over quarter, but prices rising by a high-single-digit percentage, indicating that growth was mainly driven by prices rather than simply stacking shipment volumes, reflecting extremely tight industry supply and demand. NAND revenue was $14.1 billion, up 526% year over year and 42% quarter over quarter, with bit shipments growing about 10% and prices rising about 30%, likewise confirming the severity of supply bottlenecks. Also noteworthy is that Micron disclosed key information on future capacity during its conference call: more than 75% of shipments for fiscal 2027 have already been locked in through long-term agreements, the number of strategic customer agreements (SCAs) increased from 16 in the previous quarter to 26, total customer prepayments rose from $22 billion to $32 billion, and remaining performance obligations (RPO) reached about $150 billion, up sharply from about $100 billion in the previous quarter. These agreements are expected to cover more than 35% of Micron's revenue through 2030, with about three-quarters already having a pricing framework in place, most with price ranges set, and some agreements even extending to 2031. On capital expenditure, Micron announced about $25 billion in capital expenditure in the first half of fiscal 2027, of which about $11.5 billion will be in the first quarter, with a further increase in the second half, most of the incremental amount used for new wafer fabs rather than equipment purchases. On the pace of capacity coming online, first output from the Idaho fab has been pulled forward to mid-CY27, the Singapore fab is expected to produce in 2HCY28, cleanroom completion at the Hiroshima fab has been moved up to late CY28, and the New York fab has broken ground. Chief Financial Officer Mark Murphy said on the conference call that the fourth fiscal quarter generated $44 billion in operating cash flow and $33.2 billion in free cash flow, and promised to return 100% of excess cash to shareholders in the future. Memory is defining the boundaries of AI Micron CEO Sanjay Mehrotra defined the current industry transformation on the conference call as: "Superintelligence is creating the most compelling opportunity in Micron's history." This statement is not empty rhetoric. From an industrial logic perspective, the expansion of AI model scale brings not only computing power demand, but also exponential growth in demand for memory capacity and bandwidth. Mehrotra pointed out on the conference call that running AI applications on platforms with stronger memory capabilities can achieve more scalable growth and improve end-user experience. In other words, memory is not only an important part of AI infrastructure, but also a key variable determining the upper limit of AI system capabilities. In the HBM field, Micron has partnered with NVIDIA Corporation (NVDA.US) to develop the industry's first customized HBM solution. In the first quarter of 2026, Micron began mass production of HBM4 12-high stacked 36GB products for NVIDIA Corporation's Vera Rubin platform, achieving bandwidth of more than 2.8TB/s. Mehrotra revealed that most of HBM supply for 2027 has already been contracted, "with prices rising significantly year over year, which narrows the gross margin gap between HBM and conventional DRAM." This means the HBM business is shifting from "strategic investment" to "profit contribution." In the longer term, Mehrotra outlined a new growth pole of "physical AI" on the conference call. He emphasized that memory capacity for L4 and above autonomous vehicles typically exceeds 200GB, with storage capacity reaching several TB, an order of magnitude higher than current L2+/L3 levels; humanoid Siasun Robot&Automation is also expected to have similar demand. He stressed that by the end of this decade, physical AI will become an important DRIVE for memory demand. JPMorgan's supply-demand analysis published before the earnings showed that the HBM market's supply-demand gap in 2026, 2027, and 2028 will be 20%, 19%, and 16%, respectively, with cumulative shortage reaching 23 weeks by 2028. Citi's analysis was more aggressive, expecting the supply-demand gap to widen from -21% in 2027 to -36% in 2028. Deutsche Bank Aktiengesellschaft's estimates suggest that the DRAM supply-demand gap will further widen in 2027 and 2028, and the market may not reach supply-demand balance until 2029. These data point to the same conclusion: AI-driven memory demand has entered a phase of structural shortage, rather than cyclical fluctuation. Why is the stock price stuck in volatility? Given such strong fundamentals, why has Micron's stock price barely moved? First, gross margin guidance became a "brake" on short-term sentiment. The 87% gross margin in the fourth fiscal quarter did exceed analysts' expectations (86.9%), but gross margin guidance for the next fiscal quarter is about 86.25%, below the market's expected 87.4%. CFO Murphy explained that the first fiscal quarter will be the low point for gross margin in all of fiscal 2027, mainly due to higher-cost inventory sales and higher compensation expenses, after which gross margin is expected to gradually recover in subsequent quarters, but the pace of price increases will moderate. With expectations extremely full, even a 0.45 percentage point shortfall in gross margin guidance is enough to trigger profit-taking by some investors. Second, the sharp jump in capital expenditure overshadowed the positive news of the earnings beat. The market began to worry that Micron is shifting from a "gross margin expansion model" to a "capacity expansion model." Some analysts noted that as financial results continue to exceed expectations, Micron's stock price may enter a consolidation phase and no longer rise sharply simply on positive earnings. A significant increase in capital expenditure means higher future depreciation expenses and possible structural pressure on profit margins, which has become an important factor weighing on the short-term stock price. Some analysts also noted that the news of "increased capital expenditure" overshadowed the positive earnings beat in after-hours trading. The team of Goldman Sachs Group, Inc. analyst James Schneider also noted in its latest research report that Micron's latest quarterly results and next-quarter guidance were significantly above Wall Street expectations, while the company disclosed more long-term customer agreements and sharply raised its capital expenditure plan, factors that are expected to support a modest rise in the stock price; however, gross margin was slightly below Goldman Sachs Group, Inc.'s expectations, and investors' prior expectations were already elevated, limiting room for further valuation expansion. From the investor perspectiveand possibly the most fundamental reasonthe market's focus is shifting from "how strong is the boom" to "how long can the boom last." Morgan Stanley noted after the earnings that the market's focus is shifting, with investors no longer merely concerned about how good current results are, but beginning to examine whether this supercycle can continue after 2028. Micron's stock has already risen sharply this year, and the market has priced in an earnings beat fairly fully. Despite strong fundamentals, Micron's stock still trades at about 7 times forward earnings, well below the average of about 10 times over the past two years, and the market's expectation of a significant slowdown in growth in fiscal 2027 to 2028 has already been partly reflected in the valuation. In addition, expectation management may even have entered a stage where "beating expectations is not enough." Some analysts noted that analysts have come to regard Micron beating its own guidance as the norm, and what the market expects is "beating the beat." Options market data show that over the past 10 earnings reports, Micron's stock moved an average of 9.4% the next day, with a median of 9.1%, but this time options priced in only about a 6.3% move, indicating that the market's expectation of sharp post-earnings volatility has clearly diminished. Goldman Sachs Group, Inc. maintained a "Neutral" rating on Micron after the earnings release, but raised its target price from $1,100 to $1,250, based on 18 times earnings and raised normalized earnings per share of $70. The Schneider team concluded that the risk-reward at current levels is roughly balanced, but if it sees the industry maintain supply growth discipline through 2028 and beyond, it would consider taking a more positive view on Micron. In fact, the significance of Micron's earnings report goes beyond the performance of a single company. The core signal it sends is that demand for memory from AI infrastructure buildout is not a short-term pulse, but a long-term structural trend that may last until 2028 or even longer. But for investors, the challenge is that when a company's strong fundamentals have become consensus, the source of excess returns is no longer confirming the strength of the boom itself, but judging whether the durability of this cycle can exceed market expectations. The current valuation level of about 7 times forward earnings both reflects the market's concern about slowing growth and may also contain undervalued long-term value.