After a 40% rebound in its stock price, Micron faces a crucial earnings test tonight: net profit is expected to surge by over 1000%, with the market closely watching next year's AI capital expenditure.

Micron Technology will release its earnings report after the US stock market closes on Wednesday. Market focus has shifted from the results themselves to management's statement regarding the outlook for AI capital expenditures by hyperscale cloud customers next year. This statement will directly determine whether the stock price's 40% rebound from its July lows can continue.

Amid continued strong demand for AI infrastructure, Micron's stock price has rebounded more than 40% from its low on July 29, adding approximately $370 billion to its market capitalization. Daniel Morgan, senior portfolio manager at Synovus Trust, said that if management clearly states in the earnings call that it "does not expect hyperscale customers to significantly reduce their capital expenditure budgets next year and anticipates that spending will continue," it will be a strong catalyst for the stock price.

However, despite strong recent fundamentals, Micron's stock price is still trading at approximately 7 times its forward price-to-earnings ratio, well below the average of about 10 times over the past two years and significantly lagging behind the S&P 500's 19 times. Market expectations of a significant slowdown in growth for fiscal years 2027-2028, along with the inherent cyclical risks in the memory industry, continue to suppress valuations.

Earnings are expected to be revised upwards, but the magnitude will be narrower.

Analysts generally expect Micron's earnings to hit a record high this quarter, but the upside potential is narrower than in previous quarters.

According to the average analyst estimate compiled by Bloomberg, Micron's net profit for the fourth fiscal quarter of 2026, ending in August, is expected to reach $36 billion, with revenue of approximately $51.5 billion, representing year-over-year growth of over 1000% and 350%, respectively. Gross margin is expected to reach 86%, a significant increase from 46% in the fourth quarter of fiscal year 2025.

A team led by Morgan Stanley analyst Joseph Moore forecasts quarterly revenue of $50.024 billion, a 20.7% increase sequentially and a 342.1% increase year-over-year, slightly below market consensus. Gross margin is projected at 86.4%, higher than the consensus estimate of 85.3%; earnings per share are projected at $31.20, slightly below the consensus estimate of $31.49.

In a research report dated September 28, Morgan Stanley indicated that it expects earnings to be revised upwards this quarter, but by a smaller margin than in previous quarters. The team believes that while demand and prices in the DRAM and NAND markets are currently strong and rising, some long-term contracts have price caps, and the fact that this quarter is a 14-week quarter may present some technical headwinds.

Next Quarter Outlook: Pricing momentum continues, revenue is expected to exceed expectations.

Morgan Stanley forecasts revenue of $57.56 billion for the next fiscal quarter ending in November, representing a 15.1% increase sequentially and a 321.9% increase year-over-year, exceeding the market consensus of $56.644 billion. DRAM prices are expected to rise 12% sequentially, while NAND prices are expected to rise 10% sequentially. Gross margin is projected at 88.1%, higher than the market consensus of 85.3%; earnings per share are projected at $35.57, also higher than the market consensus of $35.07.

Morgan Stanley believes that upward pricing in the DRAM market is now a market consensus, and the NAND market is also gradually forming a consensus after Trendforce significantly raised its forecasts. The team estimates that entering the fourth calendar quarter, memory prices have already risen by 15% to 20% compared to the previous quarter, with some categories experiencing even higher increases.

Regarding the demand structure, Morgan Stanley points out that despite some uncertainty in the consumer market, supply has continued to shift towards the enterprise market, and its channel research shows that memory purchased by enterprises is deployed immediately, with limited risk of inventory backlog.

The core controversy: the sustainability of the cycle, not the level of the boom.

The core controversy surrounding Micron has shifted from "how good can the business be" to "how long can the good business last," a change that has profound implications for the repricing of the stock price.

According to Bloomberg data, Micron's revenue growth is projected to slow significantly from 247% in fiscal year 2026 to 96% in fiscal year 2027, and further narrow to 12% in fiscal year 2028. This sharp decline in the growth curve is the core logic behind the current 7x forward price-to-earnings ratio valuation discount.

According to Shaon Baqui, senior equity analyst at Janus Henderson, if the memory industry can maintain gross margins of over 80% and sustain cash flow, it could eventually drive stock valuations back to higher price-to-earnings ratios.

Morgan Stanley listed three major investor concerns regarding the sustainability of the current upward cycle: the risk of AI server de-specking; the expansion of memory supply in China; and the overall increase in supply driven by capital expenditure. The team addressed each concern, stating that AI computing power deployment is less price-sensitive to memory demand, and that China's supply expansion is unlikely to surpass that of Western manufacturers in the current environment. Their industry research indicates that supply and demand will be even tighter in 2027 and 2028 than they are now. Morgan Stanley maintained its "Overweight" rating on Micron and its target price of $1200.

Sustainability of Stock Price Rebound: A Race Between Valuation Discount and Catalysts

Micron's stock price has rebounded more than 40% from its July lows, with a year-to-date gain of 273%, making it the fourth-largest gainer in the S&P 500. However, the stock price is still about 12% below its all-time high on June 25, indicating that the valuation recovery is not yet complete.

Recently, sentiment in the semiconductor sector has experienced significant volatility. The Philadelphia Semiconductor Index plunged nearly 6% on September 14th, triggered by Anthropic CEO Dario Amodei's call to slow down the development of cutting-edge AI models to strengthen security. Subsequently, the popularity of Meta's Muse AI assistant rekindled market confidence in the application of consumer AI, driving the semiconductor index to rebound by over 13%.

In addition, Morgan Stanley notes that Micron's share buyback progress is also worth noting. Due to restrictions imposed by the Chip Act, Micron's cash returns are limited in this cycle, and the buyback space is expected to expand after December. However, the team advises investors to maintain a cautious outlook.

In summary, the specific statements made by management during this earnings call regarding AI capital expenditures for hyperscale customers in 2027 will be a key variable determining whether Micron's stock price can break through previous highs and complete its valuation repricing.

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