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Micron Technology ( MU -2.05% ) once again delivered an outstanding quarter when it reported its fiscal Q4 results after the bell on Sept. 30. The memory maker's revenue and earnings soared, and it issued robust guidance. However, as I predicted earlier , that wasn't going to matter much when it came to how the stock would react following its earnings report, and it wavered between positive and negative territory throughout the next session.
Going into the report, Micron's stock had been one of the market's best performers. It was up more than 250% in 2026 and had climbed more than 450% over the past year. As such, expectations were high going into its earnings announcement, even though the stock trades at a very cheap valuation on the surface.
Meanwhile, investor focus has turned more toward the longevity of Micron's earnings power than the strength of its near-term growth. Let's dive into the memory company's results and prospects to see whether the artificial intelligence (AI) stock is a buy or a value trap. Premium Feature Moneyball Superscore 91 /100 Today's Change ( -2.05 %) $ -22.50 Current Price $ 1,074.89 Huge growth continues As one of the three big memory manufacturers, Micron has been benefiting from soaring DRAM (dynamic random-access memory) and NAND (flash) memory prices, both of which are supply constrained due to the AI infrastructure build-out.
In fiscal Q4, 73% of Micron's revenue came from DRAM, with the remainder mainly from NAND. The DRAM market is being driven by huge demand for high-bandwidth memory (HBM), which gets packaged with AI chips, such as graphics processing units (GPUs). HBM has become an essential component in the AI data center build-out.
Without it, GPUs would sit idle, waiting for data to arrive, and systems would likely overheat. Of the big three DRAM makers, Micron holds the smallest market share and derives the least amount of its memory revenue from HBM. However, this has actually benefited the company, as conventional DRAM and NAND price increases have outpaced those of higher-priced HBM.
That said, in fiscal Q4, Micron said its HBM revenue growth surpassed its total revenue growth, and it expects HBM shipments to grow faster than DRAM through 2028. It has sold out nearly all its HBM supply for calendar 2027 with a significant price increase, which it indicated will close the gross margin gap with ordinary DRAM. Moving forward, Micron expects DRAM and NAND to remain supply constrained in both 2027 and 2028.
This is despite NAND industry shipments growing in the mid-20% range and DRAM shipments increasing in the low-20% range. It sees no line of sight to when DRAM supply and demand will become balanced. Micron has 26 long-term agreements in place, representing $32 billion.
It estimates these agreements will cover 35% of its revenue through 2030. It also noted that it has a few agreements that go beyond 2030. With increased visibility, it plans to spend $25 billion in capital expenditure (capex) in the first half of this fiscal year to increase capacity, with second-half capex even higher.
Image source: The Motley Fool Turning to its results, Micron reported that its revenue increased from $11.3 billion to $54.2 billion, easily surpassing the $51.1 billion consensus, as compiled by LSEG . By segment, cloud memory revenue soared more than 3.5 times to $16.3 billion, while core data center revenue surged from $1.6 billion in the year-earlier period to $18 billion. Mobile revenue climbed from $3.8 billion to $13.1 billion, while automotive and embedded revenue jumped from $1.4 billion to $6.8 billion.
Gross margin expanded to 86.8%, up from just 44.7% a year ago, and was up from 84.6% in fiscal Q3. Adjusted earnings per share (EPS) came in at $25.11 compared to $3.03 a year ago. That was ahead of the $31.61 in adjusted EPS that analysts expected.
Looking ahead, Micron guided for fiscal Q1 revenue of around $61.5 billion with gross margins of approximately 86.25%. The company is looking for adjusted EPS of about $38.15 at the midpoint. That was well above the consensus for adjusted EPS of $35.40 and revenue of $57 billion.
With a forward price-to-earnings (P/E) ratio of 6.5 times fiscal 2027 analyst estimates, Micron's stock looks dirt cheap. The company is seeing spectacular growth, but the question is where earnings will normalize, given that the memory market has historically seen very large boom-and-bust cycles. Despite its growing HBM business, Micron is still the memory maker most exposed to a drop in conventional DRAM prices, and the balancing of the market would hit its earnings power hard.
That is why I'd pass on the stock and prefer rival SK Hynix , which is the HBM market leader and gets the highest percentage of its revenue from next-generation memory.
Source: The Motley Fool
