Micron ($MU) looks extremely interesting after the latest quarterly results (FQ3 2026).
Their financial results for the third fiscal quarter delivered incredible numbers:
Revenue: $41.46 billion (a massive increase of 74% quarter-over-quarter and 346% year-over-year).
Gross margin: 84.9%, compared with just 39% in the same period last year. Even the best software companies could dream of a margin like this.
Net income: $28.86 billion, with net operating cash flow reaching $25.39 billion.
Q4 outlook: Management expects revenue of up to $50 billion with a gross margin around 86% and EPS of $31.00.
Why might this company no longer be the cyclical commodity firm we knew a few years ago? There are several reasons:
1. Strategic customer agreements (SCAs):
Micron has broken the traditional market model and signed 16 long-term contracts (effective from 2026 through the end of 2030) with giants in data centers, automotive, and consumer electronics. These contracts already cover roughly 20% of DRAM volume and one-third of NAND volume. Once all planned agreements are fully implemented, about half or more of the company’s total revenue will be allocated under these contracts.
2. Take-or-pay commitments with a guaranteed price floor:
Customers have fixed volumes they must purchase under the contracts. Crucially, the agreements define a price floor that ensures Micron an extremely robust gross margin, far exceeding the peaks of any previous cycles. Fourteen out of the 16 contracts alone guarantee cumulative minimum revenues of $100 billion. In addition, Micron will receive $22 billion in upfront cash deposits and financial commitments based on these contracts.
3. Structural supply deficit at least through 2027+:
Demand for memory driven by complex AI models far outpaces production capacity. Building new fabs (greenfield projects) takes years due to shortages of skilled labor, approval processes, and heavy energy infrastructure requirements. Moving to advanced nodes also yields lower natural bit-growth. The new generation of HBM4 memory (where Micron has already booked over $1 billion in revenue) consumes many times more manufacturing capacity and cleanroom space, creating enormous pressure on capacity for standard DRAM.
4. Expansion into high-margin, high-value segments:
Cloud and core data centers (CDBU) grew quarter-over-quarter by 78% and 103%, respectively, with margins between 83% and 87%. At the same time, a wave of physical AI is arriving. Autonomous vehicles at L2+ and above require more than 5× the memory of a typical vehicle. The biggest long-term catalyst, however, is humanoid robots — they carry up to 10× the memory capacity of L2+ vehicles, which will trigger a massive secular megacycle in the second half of this decade.
Given the structural supply deficit that will persist at least through 2027 (and likely beyond), the company is poised for a period of the highest profitability in its history.