Micron's Q4 revenue increased nearly 4 times year-on-year, Q1 revenue guidance exceeded expectations but gross margin fell short of expectations, the CEO stated that storage will be tighter the year after next

Author: Yang Chen, Wall Street Journal

Micron Technology reported record results for the fourth quarter of fiscal year 2026 and provided guidance for the next quarter that significantly exceeded market expectations. The company also assessed that AI-driven memory demand continues to strengthen, and the supply-demand situation in the DRAM and NAND markets for 2027 and 2028 will tighten further compared to 2026.

Micron expects revenue for the first quarter of fiscal year 2027 to reach $61.5 billion, with a fluctuation of $1.5 billion, while the market expects $57.02 billion; the non-GAAP adjusted earnings per share are projected to be $38.15, with a fluctuation of $1, while the market expects $35.40. Both guidance medians are above Wall Street expectations.

For the fourth quarter of fiscal year 2026 ending September 3, Micron's revenue was $54.229 billion, a quarter-over-quarter increase of 31% and a year-over-year increase of 379%, exceeding market expectations of $51.49 billion. On a non-GAAP basis, net profit was $38.398 billion, with adjusted earnings per share of $33.42, a quarter-over-quarter increase of 33%. The gross margin was 87.0%, up 2.1 percentage points from the previous quarter.

After the earnings report was released, Micron's stock price briefly rose before falling back. However, Morgan Stanley pointed out that the market's focus is shifting from "How high can the industry prosperity reach?" to "How long can this high prosperity last?"

The company expects a gross margin of about 86.25% for the first fiscal quarter, lower than the 87% in the fourth quarter and below analysts' expectations of 86.7%. CFO Mark Murphy stated that the first fiscal quarter is expected to be the low point for gross margin in fiscal year 2027. The gross margin for the remaining quarters of the year is expected to increase further, but the pace of price increases will moderate.

CEO Sanjay Mehrotra stated that industry demand has further strengthened since the last earnings report, and the company expects the supply-demand situation for memory and storage in 2027 and 2028 to be significantly tighter than in 2026.

Data Center Business Share Rises to 33%

AI data center demand remains the core driver of Micron's performance growth.

In the fourth quarter, core data center business revenue reached $18.002 billion, a quarter-over-quarter increase of 56%, accounting for 33% of the company's total revenue, with a gross margin of 90%, up 2.9 percentage points from the previous quarter.

Cloud storage business revenue was $16.283 billion, accounting for 30% of total revenue; mobile and client business revenue was $13.114 billion, accounting for 24%; automotive and embedded business revenue was $6.824 billion, accounting for 13%.

From a product perspective, fourth-quarter DRAM revenue reached $39.8 billion, a year-over-year increase of 343%, accounting for 73% of the company's total revenue. DRAM bit shipments increased in the mid-single-digit range quarter-over-quarter, but prices rose in the high-single-digit range, primarily driven by tight industry supply.

NAND revenue reached $14.1 billion, a year-over-year increase of 526% and a quarter-over-quarter increase of 42%. NAND bit shipments grew by about 10%, and prices increased by about 30%, also reflecting supply tightness.

Strong Demand for HBM, Most Capacity for 2027 Already Contracted

Micron's management stated that AI applications are continuously raising the requirements for memory capacity and performance.

As model parameter sizes expand, context lengths increase, and concurrency rises, AI workloads require more memory and storage capacity. The company believes that memory and storage performance are becoming important components of competitiveness for AI platforms.

HBM is one of the most directly benefited products from this trend.

Micron stated that fourth-quarter HBM revenue growth exceeded the overall revenue growth of the company, and the company has completed agreements for most of the HBM bit supply for 2027, with related prices significantly higher than in 2026.

The company is also continuing to advance HBM4 and is collaborating with NVIDIA to develop customized HBM4E products for the next-generation GPU and NVLink Fusion platform.

In the NAND field, AI context storage, KV Cache offloading, and HDD replacement demand are expanding the data center SSD market. Micron's fourth-quarter data center SSD revenue approached $10 billion, a year-over-year increase of more than 10 times, accounting for more than two-thirds of the company's total NAND revenue.

Micron Expects Supply and Demand to Continue to Tighten in 2027 and 2028

CEO Sanjay Mehrotra stated, industry demand has further strengthened since the last earnings report, and the company expects the supply-demand situation for memory and storage in 2027 and 2028 to be significantly tighter than in 2026.

Micron expects that the global NAND bit shipment growth rate for 2027 and 2028 will be in the mid-20% range, but the industry will still face supply constraints.

For DRAM, the company expects the industry bit shipment growth rate during the same period to be in the low-20% range, with the industry also continuing to face supply limitations.

Notably, Micron stated that even if the industry increases DRAM cleanroom capacity, under strong demand and continuous new customer requests, the company currently cannot determine when supply and demand will return to balance.

26 Strategic Agreements Lock in Long-Term Demand

To improve the predictability of future performance, Micron is reducing the traditional cyclicality of the memory industry through strategic customer agreements.

So far, the company has signed 26 strategic customer agreements, and the revenue covered by these agreements is expected to account for more than 35% of total revenue before 2030.

About three-quarters of the related revenue has already established pricing frameworks, with most agreements containing price floors and ceilings; the remaining quarter is negotiated periodically based on market prices.

Customer commitments to these agreements have increased to $32 billion, with the vast majority being cash deposits.

Micron stated that these agreements all include "take-or-pay" provisions, meaning customers are obligated to purchase as stipulated in the contract. The company's current remaining performance obligations are approximately $150 billion, and based on the minimum price stipulated in the agreements, the expected related profit margins will still be significantly higher than the peak of any previous cycle.

Sanjay Mehrotra stated that strategic customer agreements are enhancing the company's confidence in the sustainability of future financial performance.

Increasing Capital Expenditures to Prepare for Expansion After 2028

Sustained strong demand also means that Micron needs to further expand capacity.

The company expects capital expenditures for the first quarter of fiscal year 2027 to be about $11.5 billion, approximately $25 billion for the first half of the year, and capital expenditures for the second half of the year will further increase.

Management stated that the main portion of the increase in capital expenditures for fiscal year 2027 will be used for the construction of factories and cleanrooms to accelerate the release of capacity in the second half of 2028 and beyond.

Newly built fabs cannot be immediately converted into effective supply; it takes several quarters of ramp-up from the start of production to achieve significant capacity.

Therefore, as AI demand continues to grow, the focus of the market in the coming quarters will shift from purely demand growth to the gap between the speed of new capacity release and the growth of AI memory demand.