Micron (NASDAQ:MU) recently reported fiscal Q4 revenue of $54.23 billion, up from $11.32 billion a year earlier, and the stock’s first reaction was a shrug. Non-GAAP earnings came to $33.42 a share, and management guided the next quarter higher still.
Micron makes the memory chips that sit beside processors in data centers, phones, PCs, and cars: DRAM (fast working memory), NAND (storage), and the high-bandwidth memory (HBM) that feeds AI accelerators. For most of its history, it has been a boom-and-bust business tied to chip prices.
Whether this boom is different depends less on the record quarter than on what customers are doing with their checkbooks, and on what Micron is doing with its own.
Margins That Commodity Businesses Don’t Earn
Commodity businesses compete on price, and profits vanish when supply catches up. Micron’s numbers don’t look like that. Non-GAAP gross margin was 87.0% in fiscal Q4, against 45.7% a year earlier. The Core Data Center unit brought in $18.00 billion of revenue at a 90% gross margin, versus $1.58 billion a year ago.
The edge comes from technology and scarcity. CNBC reported that Micron is the only U.S.-based maker of HBM, and that its CEO said on the call that the company is working with Nvidia (NASDAQ:NVDA) on the first custom HBM design. Micron also began sampling 512GB server memory modules, and sales of its server LPDDR SOCAMM line more than doubled from the prior quarter. Another company sells something that AI data centers can’t build without, and it isn’t memory. See which one.
Customers are Paying Up Front To Secure Supply
The newer evidence is contractual. Micron has signed what it calls Strategic Customer Agreements, which its CEO said add confidence in the durability of its results. The balance sheet shows why. Noncurrent customer contract liabilities, which hold money customers paid in advance, rose to $12.9 billion from $568 million a quarter earlier, and customer deposits brought in $12.75 billion during fiscal 2026. Buyers putting up cash to lock in supply isn’t how commodity markets usually behave.
The cash is stacking up, too. Fiscal 2026 operating cash flow was $89.68 billion, and adjusted free cash flow (operating cash flow after net capital spending) was $62.31 billion. The deposits are booked in financing cash flow, outside both figures. Guidance for fiscal Q1 2027 calls for $61.5 billion of revenue, plus or minus $1.5 billion. Micron is spending billions on new capacity to meet AI demand. Another company is tackling the same shortage in a very different way.
What Happens When all That Construction Becomes Supply?
The bear case is the one memory investors know well. Micron spent $27.37 billion net on capital projects in fiscal 2026, up from $13.80 billion in fiscal 2025, with $10.77 billion of it landing in the fiscal fourth quarter alone. If new capacity arrives faster than AI demand grows, prices slip, and an 87% gross margin has a long way to fall.
The contracts blunt that risk without erasing it. They support volume and visibility, but the release doesn’t disclose pricing terms. A $73.48 billion cushion of cash, marketable investments, and restricted cash means a downturn would hit earnings, not survival. Want more ways to play the AI data-center buildout? Here’s a list of stockstied to the same spending wave.
A Multiple that Assumes the Profits Won’t Last
At about 6 times expected earnings, Micron trades far below its five-year average P/E of 74.27. Part of that gap is a flawed yardstick: fiscal 2025 non-GAAP EPS was $8.29, while fiscal 2026 reached $75.52, so the old average reflects a much smaller earnings base. GAAP EPS for the year was $74.33, and the non-GAAP figure mainly adds back stock-based compensation, plus a $500 million patent license charge in fiscal Q4. The choice changes little.
What a multiple of 6 really says is that the market treats these profits as peak profits. Expected EPS growth of 16% next year, far slower than the leap just completed, fits that view. But guidance for fiscal Q1 2027 alone is $38.15 of non-GAAP EPS, plus or minus $1, above the $33.42 just reported. If earnings merely hold near that pace, 6 times looks undemanding. If the cycle turns, it isn’t cheap at all.
Hedge fund interest rose, with 184 funds holding the stock in the most recent quarter, up from 154 in the prior one. Short interest stands at 2.45% of the float and shows relatively limited bearish positioning.
Where the Evidence Leaves a 6x Multiple
The evidence points to a business changing faster than its stock’s reputation. Customer deposits, 87% gross margins, and guidance that keeps stepping up look less like a classic spike. For investors who accept memory’s history and want to judge the stock on how durable earnings prove to be, 6 times expected earnings looks more interesting than the skepticism implies. A slide in gross margin well below the guided level of about 86.25% while capital spending keeps climbing, or customer deposits drying up, would change that picture.
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This article is originally published at Insider Monkey.
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