After a 40% Stock Price Rebound, Micron Faces Earnings Report Test Tonight: Net Profit Expected to Surge Over 1000%, Market Closely Watching Next Year's AI Capital Expenditure

Micron Technology will release its earnings report after the U.S. market closes on Wednesday. The market's focus has shifted from the results themselves to management's commentary on the outlook for hyperscale cloud customers’ AI capital expenditures next year. This guidance will directly determine whether Micron's stock, which has rebounded 40% from its July low, can sustain its rally.

Against the backdrop of continued strong demand for AI infrastructure, Micron's stock has rebounded more than 40% from its July 29 low, with the company’s market capitalization increasing by approximately $370 billion. Daniel Morgan, Senior Portfolio Manager at Synovus Trust, noted that if management clearly states on the earnings call that they "do not anticipate a significant reduction in capital expenditure budgets from hyperscale customers next year and expect spending to be sustained," this will serve as a strong catalyst for the stock price.

However, despite recent fundamental strength, Micron shares are trading at about 7 times forward P/E, well below the average of around 10 times over the past two years, and significantly trailing the S&P 500’s 19 times. Market expectations for a sharp slowdown in growth for fiscal years 2027–2028, along with the inherent cyclicality of the memory industry, continue to suppress valuations.

Profit Revisions Expected, but Magnitude Narrows

Analysts generally expect Micron to deliver record results this quarter, though the potential for upward revisions is narrower than in previous quarters.

According to Bloomberg's compilation of analysts’ average estimates, Micron’s net profit for Q4 FY2026 ended in August is expected to reach $36 billion, with revenue of approximately $51.5 billion—up more than 1000% and 350% year-over-year, respectively. Gross margin is expected to reach 86%, up significantly from 46% in Q4 FY2025.

A team led by Joseph Moore, analyst at Morgan Stanley, forecasts quarterly revenue of $50.024 billion, a 20.7% increase quarter-over-quarter and a 342.1% increase year-over-year, slightly below consensus expectations. Their gross profit margin is estimated at 86.4%, above consensus at 85.3%; earnings per share are projected at $31.20, slightly below the consensus of $31.49.

Morgan Stanley's September 28 research report pointed out that earnings are expected to be revised upward this quarter, but the extent will be less than in prior quarters. The team believes that while current DRAM and NAND market demand is strong and prices are rising, some long-term agreements have price caps, and the quarter has 14 weeks, introducing some technical headwinds.

Outlook for Next Quarter: Pricing Momentum Continues, Revenue May Exceed Expectations

For the next fiscal quarter ending in November, Morgan Stanley forecasts revenue of $57.56 billion, up 15.1% quarter-over-quarter and 321.9% year-over-year, above the consensus estimate of $56.644 billion. DRAM prices are expected to increase by 12% quarter-over-quarter, and NAND prices by 10%. Gross margin is projected at 88.1%, above the consensus of 85.3%; earnings per share are expected to be $35.57, also above the consensus of $35.07.

Morgan Stanley believes there is now a market consensus on DRAM pricing momentum, and the NAND consensus is forming following Trendforce’s substantial upward revision of forecasts. The team estimates that by the start of the fourth calendar quarter, initial memory prices have risen 15% to 20% versus the prior quarter, with some categories seeing even larger increases.

Regarding demand structure, Morgan Stanley notes that despite some uncertainty in the consumer market, supply continues to shift toward the enterprise market, and their channel checks indicate all enterprise memory purchases are being deployed immediately, leaving limited risk of inventory overhang.

Core Debate: Cycle Sustainability, Not the Absolute Level of Boom

The core market debate around Micron has shifted from “how good can it get” to “how long can it last”—a transition with major implications for stock repricing.

According to Bloomberg data, Micron’s revenue growth rate is expected to slow sharply from 247% in FY2026 to 96% in FY2027, and further narrow to 12% in FY2028. This steep decline in the growth curve underpins the current discount to the 7x forward P/E valuation.

Shaon Baqui, Senior Equity Analyst at Janus Henderson, states that if the memory industry can sustain gross margins above 80% and maintain consistent cash flow, it could ultimately drive a repricing of the stock toward a higher earnings multiple.

Morgan Stanley lists three main concerns investors have regarding the sustainability of this upcycle: 1) the risk of AI server de-specking; 2) expanding Chinese memory supply; and 3) overall supply increases driven by capital expenditures. The team responds that AI compute deployments are less price sensitive regarding memory demand, Chinese supply expansion is unlikely to surpass Western manufacturers in the current environment, and their industry research shows that supply-demand will be tighter in 2027 and 2028. Morgan Stanley maintains its Overweight rating and $1,200 target price on Micron.

Sustainability of Stock Rebound: Discounted Valuation Versus Catalysts

Micron's share price has rebounded more than 40% from its July low, with a year-to-date gain of 273%, making it the fourth best performer in the S&P 500. However, the share price remains about 12% below its all-time high on June 25, and the path to full valuation recovery is not yet complete.

Recently, the semiconductor sector has seen significant sentiment swings. The Philadelphia Semiconductor Index plummeted nearly 6% in a single session on September 14, triggered by Anthropic CEO Dario Amodei’s call to slow advanced AI model development for improved safety. Subsequently, Meta’s Muse AI assistant’s popularity reignited market confidence in consumer AI adoption, driving a rebound of over 13% in the semiconductor index.

In addition, Morgan Stanley highlights that Micron’s share repurchase progress also deserves attention. Restricted by the CHIPS Act regulations, Micron’s shareholder returns have been limited during this cycle, but the firm expects more buyback capacity after December. However, the team advises investors to maintain cautious expectations.

All things considered, management's commentary during this earnings call on hyperscale customers’ AI capex outlook for 2027 will be the key variable determining whether Micron's share price can break through previous highs and achieve a valuation rerate.