Micron Reports Another Dazzling Quarter. The Bears Remain Unconvinced. -- Barrons.com

By Adam Levine

Memory-maker Micron Technology reported surging fourth-quarter earnings on Wednesday afternoon as its memory chips continued to benefit from the artificial-intelligence boom. Its shares are up 1.6% in after-hours trading, after rising slightly in regular hours.

Memory chips have long been a boom and bust industry. But Micron and competitors are trying to use the extreme demand for their chips in the AI revolution to produce more stable results over the long run.

Adjusted earnings per share were $33.42, up from $3.03 last year, and ahead of Wall Street projections of $31.72. Revenue for the quarter reached $54 billion, above expectations of $51 billion, and up 379% on the year.

Micron remains in uncharted territory. Pushed by demand for memory and storage chips for artificial-intelligence data centers, sales growth and profit margins are at all-time highs.

"Industry demand has strengthened since our last earnings call, and we expect memory and storage supply-demand conditions to be much tighter in fiscal 2027 and 2028 than they were in 2026," said CEO Sanjay Mehrotra on the earnings call.

But what hasn't changed is Wall Street's skepticism about the durability of this unprecedented moment. Fiscal year 2027 began earlier this month, and Wall Street analysts expect $160 in adjusted earnings per share for Micron, which puts its forward price/earnings ratio at a low 6.6, well under the S&P 500's 18.5 P/E. Single-digit P/Es are nothing new for Micron.

The reason is that memory is one of the most cyclical parts of the cyclical chip industry. There are wild swings in inventories and prices, which are reflected in fluctuating sales growth and gross profit margin for Micron.

The old Wall Street maxim is that investors should buy these stocks when things go from bleak to merely terrible, and then sell when revenue growth and gross margin are peaking. Many tech investors still nurse the scars from a time when they mistimed the cycle, and they have one foot out the door during an upcycle.

For the fourth quarter, Micron sailed past Wall Street expectations for sales growth and posted an eye-popping gross margin of 87%, all records for Micron. For those cautious investors, it doesn't take much imagination to think these are peak numbers, especially when Micron's guidance for the first quarter is for sales growth and gross margin to fall slightly.

Data center investment is stretching past a trillion dollars a year, and all those AI servers require a lot of high-end memory and storage chips. There remains a severe shortage and prices have rocketed up at the fastest pace ever. The undersupply has bled into consumer tech, where 2026 price hikes have become the norm.

In the past, upcycles tended to end when new factories opened, filling up depleted inventories. But that's been taking longer than usual. Because the down-cycle of 2022 and 2023 was so severe, Micron and the other memory giants-SK Hynix and Samsung Electronics-were reluctant to commit capital to expanding manufacturing capacity after the AI boom began with ChatGPT's release in November 2022. New factories aren't due to open until the middle of 2027, with more slated for the following years.

Now, Micron and its peers are using their unusual market power to try to break the cycle.

Micron is getting customers into five-year supply agreements, much more than the typical one-year deal. Unlike the usual memory contracts, these deals include a price floor and a very high ceiling, binding commitments, as well as customer deposits.

"These multi-year take-or-pay agreements sharpen our long-term supply planning and enhance the durability and predictability of our strong financial performance," said Mehrotra on the call.

Last quarter, Micron devoted much of the scripted portion of the earnings call to detailing these agreements, which it hopes will soften the eventual down-cycle. Now there are 36 such agreements-up from 16-covering about a third of Micron's revenue through 2030.

The company is betting that less cyclical financials will lead to a rerating from its single-digit P/E.

But Micron may have to show that new pattern before it gets any credit. The day after the last earnings report, analysts raced each other to raise their fiscal year 2027 financial estimates and price targets, and the stock was up 16%. But shares have since faded, as the usual skepticism has bled back in.

Meanwhile, Micron is using its unprecedented cash flow to reshape its balance sheet. Micron had $59 billion in free cash flow in the just completed fiscal year. The company repaid $10 billion in debt, now down to $5 billion, and has begun a share-repurchase program.

Wall Street expects $129 billion in free cash flow for the new fiscal year.

Write to Adam Levine at adam.levine@barrons.com

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September 30, 2026 17:57 ET (21:57 GMT)