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Micron Delivers Record-Breaking Financial Report: 85% Gross Margin, AI Boom Far from Over

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Micron's third-quarter revenue, net income, and gross margin reached an all-time high, with a gross margin of 84.9%. The after-hours stock price rose by 14%. The company stated that it has entered into long-term price lock agreements with mega-scale customers and anticipates that the tight memory supply will persist beyond 2027.

Original Article Title: "Epic Earnings Report! Micron Silences the Bears"
Original Article Author: Zhao Ying, Wall Street News

Micron Technology delivered a historic earnings report that struck back at the naysayers: in the third quarter, the gross margin surged to 84.9%, not only hitting a record high in the company's 48-year history but also leaving tech giants like NVIDIA and Meta far behind. With revenue of $414.6 billion and a net profit of $282.4 billion setting new records, the stock price soared 14% in after-hours trading. More importantly, Micron has already entered into long-term price lock agreements with major customers, indicating that supply constraints may persist beyond 2027.

Micron Technology's groundbreaking earnings report effectively quashed doubts in the market about the sustainability of the AI investment frenzy.

After the market closed on Wednesday, Micron announced its third-quarter performance, with revenue, profit, and next quarter guidance all surpassing Wall Street's expectations. The stock price jumped 14% in after-hours trading, propelling Nasdaq futures higher.

This report came at an opportune time—just days earlier, the tech sector experienced widespread sell-offs, impacting Korean chip manufacturers and extending to U.S. fiber optic cable suppliers. Micron's own stock price had already dropped 7.5% earlier in the week.

Following the report, analysts believe that this performance is sufficient to inject new momentum into the recently beleaguered tech stock market. Micron CEO Sanjay Mehrotra stated during the earnings call that the company expects the tight supply conditions in the memory market to continue beyond 2027 and has already signed long-term strategic agreements with multiple large customers to lock in the current high price levels.

Record-Breaking Gross Margin Surpasses NVIDIA and Meta

The most astonishing figure this quarter was Micron's gross margin.

In the third quarter, Micron's gross margin reached 84.9%, a significant increase from 74.9% in the previous quarter and over double the margin from a year ago, which was 39%. CFO Mark Murphy stated during the call, "The third-quarter gross margin has more than doubled from a year ago, setting a new all-time high for the company."

This figure has now surpassed that of all major U.S. tech companies. NVIDIA reported a gross margin of 75% in its latest quarter, Meta around 81.9%, Broadcom at 69.5%, Microsoft at 67.6%, and Alphabet at 62.4%. Micron's competitor, SanDisk, reported a gross margin of 78.4% at the end of April, similarly much lower than Micron's current level. Notably, NVIDIA's gross margin reached around 79% in early 2024, but Micron's current level has now pulled ahead by approximately six percentage points.

Micron also expects the gross margin for the fourth quarter to further increase to about 86%. Susquehanna analyst Mehdi Hosseini commented that this is a profound shift for an industry that has been "out of favor with the market for the past 30 years since its inception."

Record-Breaking Revenue and Profit

Beyond the gross margin, Micron's revenue and net income have also set historical records in the company's 48-year history.

In the third quarter, revenue reached $41.46 billion, an increase of over $20 billion from the previous quarter—which was already a record high for the company. Net income was $28.24 billion, growing over 100% from the previous historical high set just last quarter.

As of Wednesday's close, Micron's stock price has surged over 700% in the past year, surpassing a $1 trillion market capitalization.

The driving force behind this growth lies in the explosive expansion of AI infrastructure. NVIDIA, AMD, and Google require Micron's High Bandwidth Memory (HBM) to support their AI processors, while data center operators are aggressively purchasing all available memory at any cost.

Meanwhile, consumer electronics manufacturers like Apple are also facing pressure from rising memory costs. According to The Wall Street Journal, Apple CEO Tim Cook stated last week that the iPhone will have to be priced higher to address what he described as an "unsustainable" memory pricing situation.

Long-Term Agreements Lock in High Prices, Supply Constraints Could Extend Past 2027

Amid external doubts about the sustainability of the AI boom, Micron is structurally fortifying its profitability.

Micron stated that the company is entering into long-term contracts with customers known as "Strategic Customer Agreements" (SCAs), which include a price floor to ensure the company's gross margin remains above historical peaks. Mehrotra mentioned on a conference call, "The price floor in the agreements allows Micron to achieve robust gross margins well above any previous peak in a cycle quarter." The company has now signed such agreements with four "mega customers."

This strategy marks a significant shift in the memory industry. The industry has traditionally been dominated by short-term supply contracts with prices fluctuating significantly with the cycle, and long seen as a classic commodity business. Micron is now attempting to institutionalize its pricing power.

According to The Wall Street Journal, Goldman Sachs recently informed clients that "the investment frenzy may continue, and market expectations for its scale may need to be revised upwards in the near term. However, as a substantial amount of value has already been priced into stocks, the market is increasingly fragile in the face of challenging optimistic forecasts."

Market Volatility Intensifies, but AI Narrative Remains Dominant

Despite Micron's strong earnings report, the market's structural fragility remains a concern.

Earlier this week, investors heavily exited South Korean tech stocks SK Hynix and Samsung, impacting Micron, NVIDIA, and Oracle, with the latter seeing a 15% weekly decline. According to FactSet data, a record $437 million flowed into an ETF designed to triple short the semiconductor index on Monday, leading to a sharp market drop the following day. Dow Jones Market Data indicates that the index tracking U.S. semiconductor companies is trading over 60% above its 200-day moving average, reaching its highest level since 2000.

Ron Albahary, Chief Investment Officer at multi-family office LNW, said, "Is this market sell-off normal? I think so. We are seeing more highly volatile trading days, simply signaling the market's heavy reliance on a particular narrative."

Micron's earnings report, at least temporarily, has provided strong support for this narrative. Hosseini maintains a buy rating on Micron stock, noting that as the 'memory bottleneck effect continues to play out, customers have no choice but to pay a premium'.