Explosive earnings report! Micron shuts the bears up.

Micron Technology ended market doubts about the sustainability of the AI investment boom with a historic financial report.

After the market closed on Wednesday, Micron released its third quarter results, with revenue, profit, and next quarter guidance all exceeding Wall Street expectations. Its stock price surged 14% after hours, driving up Nasdaq futures.

This report came at a crucial moment. In the days leading up to it, tech stocks faced widespread sell-offs, spreading from Korean chip makers to American fiber optic cable suppliers. Micron’s own stock had dropped 7.5% this week.

Following the earnings release, analysts believe these results are enough to inject new momentum into recently battered tech stocks. Micron CEO Sanjay Mehrotra stated on the earnings call that the company expects tight memory supply to last through 2027 and beyond, and has signed long-term strategic agreements with multiple major customers to lock in current high price levels.

Record Margins, Surpassing Nvidia and Meta

The most shocking number this quarter for the market is Micron’s gross margin.

Micron’s gross margin in Q3 reached 84.9%, a steep jump from 74.9% last quarter and more than double the 39% from a year ago. CFO Mark Murphy said on the call, "Third quarter margins more than doubled from a year ago, setting a company record."

This figure has surpassed all major US tech companies. Nvidia’s latest gross margin was 75%, Meta about 81.9%, Broadcom 69.5%, Microsoft 67.6%, and Alphabet 62.4%. Micron's competitor SanDisk reported 78.4% gross margin at the end of April, still far below Micron's current level. Notably, Nvidia’s gross margin peaked at about 79% earlier in 2024; Micron’s current level is about six percentage points higher.

Micron forecasts that its Q4 gross margin will further rise to around 86%. Susquehanna analyst Mehdi Hosseini commented, this is a "complete transformation" for an industry that has been unpopular for 30 years since its inception.

Revenue and Profit Both Hit New Record Highs

Beyond margins, Micron’s revenue and net profit also set records for the company’s 48-year history.

Q3 revenue reached $41.46 billion, an increase of over $20 billion from last quarter—which itself was already a record high. Net profit was $28.24 billion, more than doubling the previous peak, which, again, was just set last quarter.

As of Wednesday’s close, Micron’s stock had risen more than 700% in the past year, with its market capitalization exceeding $1 trillion.

The core driver behind this growth is the explosive expansion of AI infrastructure. Nvidia, AMD, and Google need Micron’s high-bandwidth memory (HBM) to power their AI processors, and data center operators are buying up all available memory regardless of cost.

Meanwhile, consumer electronics manufacturers like Apple are also under pressure from rising memory costs. According to the Wall Street Journal, Apple CEO Tim Cook said last week that iPhones will have to increase prices to cope with what he described as "unsustainable" memory prices.

Long-Term Deals Lock In High Prices; Supply Tightness May Extend Beyond 2027

Facing doubts about whether the AI boom cycle can be sustained, Micron is taking structural steps to stabilize its profitability.

Micron said it is signing long-term contracts with customers called "Strategic Customer Agreements" (SCAs), which include price floors to ensure its gross margin stays above historic peaks. Mehrotra said on the call, "The price floors in these agreements allow Micron to achieve gross margins far exceeding any past cyclical peak." The company has signed such agreements with four "super-large customers" so far.

This strategy marks a fundamental change in the memory industry. Traditionally, the industry relied on short-term supply contracts with highly cyclical prices and has always been seen as a typical commodity business. Now, Micron is aiming to institutionalize its pricing power.

According to The Wall Street Journal, Goldman Sachs recently told clients, "The investment boom may continue, and near-term expectations for its scale may still need to be raised. However, as much value is already priced in, the market is more vulnerable to negative news challenging optimistic expectations."

Market Volatility Intensifies, But the AI Narrative Remains Central

Despite Micron’s strong earnings, structural market fragility should not be ignored.

Earlier this week, investors pulled out massively from Korean tech stocks SK Hynix and Samsung; Micron, Nvidia, and Oracle were all affected, with Oracle down 15% for the week. FactSet data shows a record $437 million flowed into a triple short semiconductor ETF on Monday, and the stock market dropped the next day. Dow Jones data shows the index tracking US semiconductor companies is currently trading at over 60% above its 200-day moving average, the highest since 2000.

Ron Albahary, CIO of multi-family office LNW, said, "Are these sell-offs normal? I think so. We are seeing more days of big swings, which is just a signal that the market depends heavily on a particular narrative."

Micron’s financial report has at least temporarily provided strong support for this narrative. Hosseini maintains a buy rating for Micron's stock and notes that as "the memory bottleneck persists, customers have no choice but to pay a premium."

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