Key Points
Micron Technology (NASDAQ: MU) once again turned in a spectacular quarter when it reported its fiscal third-quarter results after the bell on June 24. While the stock initially surged, it has since given back most of its gains. The stock is still up around 236% on the year.
Let’s dig into the memory maker’s results and prospects to see whether the artificial intelligence (AI) stock is a buy.
Micron is hitting on all cylinders
Micron is one of the three major DRAM (dynamic random-access memory) manufacturers, and it has been benefiting from soaring DRAM and NAND (flash) memory prices, as both remain in short supply due to the data center build-out. Over 75% of Micron’s revenue comes from DRAM, with the rest largely from NAND.
The DRAM market is being fueled by the need for high-bandwidth memory (HBM), packaged with AI chips such as graphics processing units (GPUs) to optimize performance. The fast-growing inference market, meanwhile, tends to be even more memory-intensive than AI model training, further driving demand dynamics. Micron’s HBM supply is booked out through 2027 and into 2028, and it sees the total addressable market reaching $100 billion in 2027.
It noted that the industry outlook for both the DRAM and NAND markets is that demand will continue to significantly outpace supply. It said that supply challenges for HBM and DRAM, in particular, remain “severe.” It upped its capital expenditure (capex) budget to $27 billion this fiscal year as it begins construction on new greenfield projects to increase supply.
Overall, for its fiscal third quarter, Micron reported that its revenue increased from $9.3 billion to $41.5 billion, easily surpassing the $35.8 billion consensus, as compiled by LSEG.
By segment, cloud memory revenue surged fourfold to $13.8 billion, while core data center revenue climbed from $1.5 billion in the year-ago period to $11.5 billion. Mobile revenue jumped from $3.3 billion to $11.5 billion, while automotive and embedded revenue rose from $1.1 billion to $4.6 billion. Gross margins surged to 84.6%, up from just 37.7% a year ago, and were up from 74.4% in fiscal Q2.
Adjusted earnings per share (EPS) came in at $24.67 compared to $1.68 a year ago. That was well above the $20.78 adjusted EPS analysts expected.
Looking ahead, Micron guided for fiscal Q4 revenue of around $50 billion with gross margins of approximately 86%. The company is looking for adjusted EPS of about $30.73 at the midpoint.
Is Micron stock a buy?
Despite its continued surging revenue and gross margin expansion, Micron stock remains cheap, trading at a forward price-to-earnings (P/E) ratio of 7 times fiscal 2027 analyst estimates. While historically a boom-and-bust cyclical business, the company now has about 40% of its revenue locked up in long-term strategic customer agreements. At the same time, there are a few signs that the memory market will be in supply-demand balance anytime soon, given the surge in AI infrastructure spending and demand.
As such, the stock looks attractive at current levels.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.
