Micron Technology’s profits are starting to resemble those of a dominant software company, but its stock is still trading like investors expect the memory cycle to peak.
The chipmaker posted a non-GAAP gross margin of 84.9% in fiscal Q3, up from 74.9% in the previous quarter and 39% a year earlier.
Management expects that figure to rise again to about 86% in Q4, alongside roughly $50 billion of revenue.
Yet Micron closed Tuesday at $868.52, up 0.9% for its first gain since the previous Wednesday but still about 31% below its June high of $1,255.
Micron’s numbers improve as its stock gets cheaper
There is little in Micron’s latest results that looks like a business already weakening.
Fiscal Q3 revenue reached a record $41.46 billion, while non-GAAP operating margin hit 81.2%.
Operating cash flow was $25.39 billion, and adjusted free cash flow reached $18.3 billion.
The problem is that markets care less about where margins are today than where they go next.
Citi analyst Atif Malik recently cut his Micron target to $1,150 from $1,400 while maintaining a Buy rating.
Citi expects DRAM and NAND pricing momentum eventually to cool, pulling gross margins back towards the mid-70% range next year.
That helps explain why an 85% margin has not protected the shares. Investors are not necessarily saying Micron is weak today, but questioning how much of today’s extraordinary profitability can survive the next phase of the cycle.
Wall Street is split over whether this cycle is different
Mizuho analyst Vijay Rakesh takes the other side.
Rakesh reiterated an Outperform rating and $1,375 target, arguing that DRAM and NAND supply could remain tight through at least 2027, with meaningful new capacity unlikely to affect the market until 2028.
He sees Micron sustaining gross margins above 80% as an important driver of further upside.
Deutsche Bank analyst Melissa Weathers has also argued that AI is making today’s shortage more severe than past memory cycles.
MarketWatch reported that she sees Micron’s broad portfolio and evolving business model giving it room to grow without sacrificing profitability.
Micron’s Strategic Customer Agreements strengthen that case. The company has signed multiyear deals designed to improve revenue visibility and reduce the volatility historically associated with memory pricing, with agreements covering about 20% of memory volume.
For investors using trading platforms to follow Micron, the key issue is therefore not whether current earnings are exceptional.
It is whether the market is applying an old cyclical valuation framework to a business whose economics are becoming more durable.
HBM pricing could decide whether the sell-off was premature
High-bandwidth memory may provide the clearest test.
UBS analyst Timothy Arcuri said HBM4 and HBM4E pricing was running “even stronger than our prior expectations.”. UBS now expects HBM average selling prices to rise 79% year on year.
Arcuri also believes Nvidia’s reported move to reduce memory specifications on Rubin Ultra could increase overall HBM consumption if it allows more accelerators to be produced.
Stronger server and SSD demand is supporting NAND pricing as well.
That leaves investors debating duration rather than demand.
Citi expects profitability to normalise. Mizuho, Deutsche Bank and UBS see tight supply, AI demand and longer-term customer agreements keeping margins elevated for longer.
Micron does not need an 85% margin forever for the sell-off to look excessive. It only needs profitability to stay unusually high for longer than investors currently expect.
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