Micron Technology's latest earnings resemble a software company's profitability, yet the stock continues to trade as if the memory cycle is about to turn. The chipmaker reported a non-GAAP gross margin of 84.9% in fiscal Q3, up from 74.9% in the prior quarter and 39% a year earlier. Management guided for an even higher margin of about 86% in Q4, alongside roughly $50 billion in revenue.
Despite these stellar numbers, Micron shares closed Tuesday at $868.52, up 0.9% for their first gain in a week but still about 31% below the June high of $1,255. The disconnect highlights a market that is less impressed by current profitability and more concerned about its sustainability.
Record results, but forward-looking concerns
Fiscal Q3 revenue hit a record $41.46 billion, with non-GAAP operating margin at 81.2%. Operating cash flow reached $25.39 billion, and adjusted free cash flow was $18.3 billion. These figures show no immediate signs of weakening demand.
However, investors are focusing on the trajectory. Citi analyst Atif Malik recently trimmed his price target to $1,150 from $1,400, while maintaining a Buy rating. Citi expects DRAM and NAND pricing momentum to cool, pulling gross margins back toward the mid-70% range next year. That outlook helps explain why an 85% margin hasn't protected the shares—markets are pricing in a normalization that may be inevitable.
Wall Street split on cycle durability
Mizuho's Vijay Rakesh takes the opposite view. He reiterated an Outperform rating and a $1,375 target, arguing that DRAM and NAND supply could remain tight through at least 2027, with meaningful new capacity unlikely until 2028. He sees Micron sustaining gross margins above 80% as a key driver of further upside.
Deutsche Bank's Melissa Weathers also believes AI is making the current shortage more severe than past cycles. She sees Micron's broad portfolio and evolving business model allowing growth without sacrificing profitability. Micron's strategic customer agreements—multiyear deals covering about 20% of memory volume—are designed to improve revenue visibility and reduce historical pricing volatility.
For investors tracking Micron, the key question isn't whether current earnings are exceptional—they clearly are. It's whether the market is applying an old cyclical valuation framework to a business whose economics are becoming more durable. Recent analyst reactions after the 30% drop show the divide.
HBM pricing could be the deciding factor
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," with average selling prices expected to rise 79% year over year. He also noted that 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 also supporting NAND pricing. That leaves investors debating duration rather than demand. Citi expects profitability to normalize, while Mizuho, Deutsche Bank, and UBS see tight supply, AI demand, and longer-term agreements keeping margins elevated for longer.
Micron doesn't 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. The bullish case from memory demand warnings and AI spending trends suggest the cycle may have more legs.
This article is for informational purposes only and does not constitute financial advice.
