Micron’s (NAS: MU) October-quarter results were strong, and January-quarter guidance was even better. At the midpoints, management is guiding sequentially to 37% revenue growth, 1,120 basis points of gross margin expansion, and 76% EPS growth.

Why it matters: Tight memory supply caused by immense artificial intelligence infrastructure demand is boosting incredible market pricing for Micron and its memory chip peers. This is driving very strong growth and profit expansion that well exceeds our previous expectations.

  • We now expect supply to remain tight deep into 2027. High-bandwidth memory and traditional DRAM are critical enablers of generative AI model performance, which leads to immense demand. Simply put, supply expansion can’t keep up in the short term.
  • We expect cyclicality to endure in memory, and don’t see the robust pricing environment this year lasting into the long term. This tempers our optimism, but the current cyclical upswing is generating tremendous shareholder value.

The bottom line: We raise our fair value estimate for no-moat Micron to $225 per share, from $150, off the back of significantly higher growth and profit forecasts over the next two years. Shares popped 8% after hours, and look roughly fairly valued to us.

  • We forecast revenue to more than double in fiscal 2026, and grow strongly in the double digits in fiscal 2027. We project terrific profitability across these two years, with non-GAAP gross margins reaching 70%, well above our previous views of midcycle in the mid 30% range.
  • We continue to worry about the cycle turning down after this torrid upcycle. Micron and peers are working to build out more supply, which takes years. If supply buildouts exceed demand toward the end of the decade, it could pressure pricing, sales, and profits, as seen in historical downturns.

Micron is benefitting from immense pricing and AI demand, but remains cyclical long-term

We see Micron Technology as a strong supplier of memory chips, but we don’t believe the firm holds an economic moat. Micron benefits from large scale, being the fifth-largest chipmaker in the world, but we don’t see enough scale to generate consistent economic profits. Micron holds a third-place market share in dynamic random access memory, or DRAM, chips and a fifth-place market share in not-and, or NAND, flash chips. We view both the DRAM and NAND markets as highly cyclical, and we expect Micron to thrive in periods of strong demand and pricing but to be vulnerable to downcycles that compress shipments, prices, and profits.

DRAM and NAND chips are vital components to data centers, consumer devices, cars, and industrial equipment. Nevertheless, we see these chips as commoditylike and suppliers like Micron producing mostly fungible chips. Thus, Micron and its peers are prone to market supply-and-demand dynamics. Periods of strong industry demand can be followed by periods of oversupply that crater pricing and firm profitability, as seen in Micron’s fiscal 2023. As a vertically integrated chipmaker, Micron has a significant fixed cost base and thus periods of lower volume have a major impact on profitability.

In the medium term, we see artificial intelligence driving a strong and enduring upcycle for Micron. Micron’s high-bandwidth memory, or HBM, chips supply into AI processors from the likes of Nvidia. We credit AI investments for Micron’s strong growth in fiscal 2025 and they are a significant driver of our five-year forecast. We believe HBM will continue rising as a piece of Micron’s total shipments and revenue, helping growth and margins. We also like Micron’s shareholder distributions and view its balance sheet as good for a cyclical memory chipmaker.

Finally, we caution investors about risk from China. The Chinese government effectively cut off Micron’s sales into Chinese data centers in 2023, which will have a material impact on sales and growth. Micron earns non-data-center revenue out of China, but we expect this to remain unrestricted, as these chips are for consumer and lagging-edge markets that are less critical to national security.

Bulls say

  • When memory markets are in an upswing and demand is strong, Micron’s sales growth and profitability can be impressive.
  • Micron is benefiting from immense growth in HBM revenue, due to high investments in AI infrastructure. This boosts the firm’s growth and margin profile.
  • We like Micron’s shareholder returns and view its balance sheet as strong for a cyclical firm.

Bears say

  • Micron has a high fixed cost base that leaves it vulnerable to underutilization charges and major profit compression when memory markets enter a downturn.
  • We see DRAM and NAND as commoditylike products, and we foresee little ability for Micron to build durable differentiation against its competitors.
  • If AI investments slow down, or Micron faces steeper competition in HBM, it could dent our growth and profitability estimates, and potentially weigh on the firm’s stock.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.