Micron MU: AI Driving Storage "Surge," Can It Break Through Cyclical Constraints?

Micron (MU.O) released its Q2 FY2026 earnings report (for the period ending January 2026) after US stock market close on March 19, 2026 Beijing time. Key points are as follows:

1. Overall Performance: Micron’s revenue for this quarter was $23.86 billion, up 75% quarter-over-quarter, exceeding the upwardly revised analyst expectations ($19.9 billion). The revenue growth was mainly driven by both DRAM and NAND businesses, each increasing over 70% quarter-over-quarter.

The company’s gross margin reached 74.4%, better than the revised analyst estimate (69%). Driven by a significant rise in storage prices, both DRAM and NAND prices increased over 60% this quarter.

2. DRAM Business: Achieved $18.8 billion, up 73.6% quarter-over-quarter, mainly due to rising storage prices. The average DRAM price this quarter increased about 65% quarter-over-quarter, with shipment volume up 5%.

Specifically:
① Traditional DRAM contributed the largest increase, with estimated revenue around $16 billion, up over 80% quarter-over-quarter, as AI demand begins to boost DDR product demand;
② Dolphin estimates HBM revenue this quarter around $2.7 billion, up about $500 million, mainly benefiting from mass production and shipments of HBM3E and HBM4.

3. NAND Business: Achieved $5 billion, up 82% quarter-over-quarter. The NAND revenue was mainly driven by price increases, with shipment volume up about 2% quarter-over-quarter, and average NAND price up approximately 78%.

Previously, due to persistent market downturn, industry reduced NAND capacity. However, with AI demand extending into NAND, supply-demand mismatch has driven NAND prices sharply higher.

4. Operating Expenses: As revenue expanded, R&D and sales & admin expenses continued to decline as a percentage of revenue. Core operating profit was $16.1 billion, with core operating margin rising to 67.6%. The key to profit growth was revenue and gross margin expansion, with gross margin expected to exceed 74% driven by significant price increases in both DRAM and NAND.

5. Micron (MU.US) Guidance: For Q3 FY2026, expected revenue is approximately $32.75–34.25 billion, better than market expectations ($26.8 billion). The company expects gross margin around 81%, also above market expectations (76%). The guidance for the next quarter is notably better than market estimates, driven again by continued price increases in traditional storage products.

Overall View: Despite excellent earnings, management communication fell short of expectations.

Micron’s revenue and gross margin this quarter significantly exceeded market expectations. Growth was mainly driven by sharp storage price increases, with shipment volume only slightly up.

The company restructured its business segments: besides the growth in Cloud Memory Business Unit (CMBU), the main drivers this quarter were the Core Data Center Business Unit (CDBU) and Mobile & Client Business Unit (MCBU), boosted by large price hikes in traditional storage products.

Next quarter guidance greatly surpasses market expectations:
Micron expects revenue of about $33.5 billion (±$750 million), up $9.6 billion quarter-over-quarter, exceeding the market forecast of $26.8 billion; gross margin around 81%, well above the 76% expected by buyers, indicating further significant price hikes in storage products next quarter.

Beyond recent performance, key concerns about Micron include:

a) The long cycle of traditional storage: Nearly 80% of Micron’s revenue comes from DRAM, mostly non-HBM products. The substantial price increase in DDR has notably boosted performance, and the industry remains in a broad price-up cycle.

As AI large models shift focus from training to inference, demand for DDR and similar products increases:
① DDR demand on CPU side will rise, with single Vera CPU requiring about 1.5TB DDR (3 times Grace);
② Rubin CPX has chosen GDDR7 over HBM.

b) Certainty of AI storage demand: The current storage cycle is mainly driven by incremental AI needs, while traditional PC and mobile markets remain flat. Cloud giants are the ultimate buyers. Based on industry outlooks, capital expenditure in 2026–2027 will stay high.

Considering Nvidia’s product layout, the main contradiction in data centers has shifted from “computing power” to “storage”:
From Blackwell to Rubin, new additions like DPU (NAND) and LPU (SRAM) target storage.
Google’s TPU now supports FP8, meeting most inference needs, narrowing the computing advantage; however, the speed of computation outpaces memory access, creating a “memory wall.” When models shift from training to inference, storage becomes more critical than compute power.

c) Capital expenditure outlook: Micron has raised FY2026 capex again to $25 billion (from $20 billion last quarter), better than the market expectation (~$22.5 billion).
For FY2027, management has given a significantly higher outlook, but during subsequent analyst calls, mentioned that capex might decline after 2027.

Given Micron’s current market cap (~$519.7 billion), its after-tax core operating profit for FY2026 is roughly 8x PE (assuming +200% revenue YoY, 78% gross margin, 14.5% tax).
Due to the cyclical nature of the storage industry, valuation during previous peaks (still in a price-up phase) ranged from 5–15x PE; current valuation remains on the lower end.

Short-term:
Storage prices are in a broad upcycle, compounded by recent Samsung strike events, likely to sustain earnings surprises.

Samsung strike: Samsung holds nearly 40% of the DRAM market.
Employees are increasingly dissatisfied with wage gaps with SK Hynix; Samsung’s union voted to strike from May 21 for 18 days. Restarting production could take up to two months.

Medium to long-term:
Beyond earnings surprises, the market is more focused on “profit sustainability,” including long-term contracts (lock-ins), customer demand security, and outlook beyond FY2027. If cloud giants sign long-term agreements to secure supply, it would further boost future earnings certainty.

Management responded to market concerns:

1. Long-term agreements: Upgraded from 1-year LTAs to 5-year Strategic Customer Agreements (SCAs), with the first major customer signed—more about deepening cooperation than locking in supply.

2. Customer demand security: Micron’s mid-term demand from key customers is only 50–66%, unchanged from three months ago.

3. FY2027 outlook: The company believes supply-demand gap will persist in 2027 but cannot predict beyond that. Capex will be significantly increased in FY2027, but later, analysts mentioned capex might decline after 2027 (detailed notes forthcoming).

From company and industry outlooks, growth in 2026–2027 appears relatively certain. Customer demand security remains stable; after FY2027, management is cautious, mentioning the possibility of capex reduction.

Compared to “spectacular short-term results,” the market is more eager for the storage industry to “break or ease” cyclical constraints. Based on management’s capex outlook, Micron’s valuation should still be viewed through a “cyclical stock” lens, which limits PE expansion potential.

Specific analysis of Micron’s earnings:

1. Overall performance: Revenue & gross margin far exceeded expectations
   1.1 Revenue:
   FY2026 Q2 total revenue was $23.86 billion, up 75% QoQ, surpassing market expectations ($19.9 billion). Growth was driven by both DRAM and NAND.
   Downstream, data center and networking contributed most; mobile and PC segments also saw significant growth due to traditional storage price hikes.

Looking ahead, guidance for next quarter: revenue of about $32.75–34.25 billion, up approximately 40% QoQ, better than the $26.8 billion market forecast. The company remains in a storage price-up cycle, with growth mainly driven by traditional storage price increases.

1.2 Gross margin:
Gross profit for FY2026 Q2 was $17.8 billion, with gross margin at 74.4%, up 18.4 percentage points QoQ. The margin increase was mainly due to rising prices of traditional storage products.

Despite inventory at $8.27 billion (up 0.8%), inventory turnover days decreased to 121 days, relatively low.
Gross margin for next quarter is expected around 81%, up 6.6 percentage points QoQ, indicating continued price hikes for DRAM and NAND. The potential Samsung strike could further boost margins.

1.3 Operating expenses:
Operating expenses for FY2026 Q2 were $1.62 billion, up 7.3% QoQ. Revenue growth outpaced expenses, reducing operating expense ratio to 6.8%.
Core operating profit was $16.16 billion, mainly driven by revenue and gross margin growth. Overall, stable operating expenses mean profit growth is primarily from revenue and gross margin expansion.

2. Business segment analysis: Traditional storage price hikes are the main growth driver
   DRAM and NAND remain the largest revenue sources, with DRAM accounting for about 80%.

The company restructured its reporting segments: previously divided into CNBU, SBU, MBU, and EBU, now into CMBU, CDBU, MCBU, and AEBU. Data center/cloud business now accounts for over 50%, reflecting strategic emphasis.

2.1 DRAM:
DRAM is the largest revenue contributor (~80%).
This quarter, DRAM revenue was $18.77 billion, up 74%.
Average DRAM price increased about 65%, with shipment volume up about 5%.

Specifically, HBM revenue is estimated around $2.7 billion, up about $500 million QoQ; DDR and other products around $16 billion, up over 80%.
HBM products are positioned as secondary supply for Nvidia, lagging behind Hynix in product progress.
With Nvidia’s Rubin GPU and AMD’s MI400 adopting HBM4, the focus is on HBM4 development and shipments to gain market share.

2.2 NAND:
NAND revenue was $5 billion, up 82%.
Shipment volume increased about 2%, but average price surged about 78%.
AI Capex’s impact on storage was mainly on HBM; NAND performance lagged behind DRAM previously. Now, with AI inference shifting focus, NAND benefits from increased demand.

Supply-demand shifts:
Supply side remains tight; NAND market was subdued, leading to capacity cuts. Major manufacturers prioritized DRAM expansion over NAND.
Demand side increased due to AI applications, e.g., Nvidia’s Rubin added NAND layers.

Nvidia’s Rubin introduced the “Inference Context Storage Platform” (ICMS):
Dedicated storage platform that offloads KV Cache from HBM to more cost-effective storage, freeing HBM bandwidth for computation, reducing inference costs.

Each Rubin GPU can expand NAND capacity by an additional 16TB (as external memory), with a single NVL72 capable of supporting 1,152TB of NAND.