Micron Earnings: What Goes Up Must Come Down … Eventually

Key Morningstar Metrics for Micron Technology

• Fair Value Estimate
  : USD 850.00
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : None
• Morningstar Uncertainty Rating
  : Very High

What We Thought of Micron Technology’s Earnings

Micron Technology MU reported eye-watering May-quarter results, beating revenue and earnings guidance by 24% and 31%, respectively. Revenue rose 346% year over year to USD 41 billion, non-GAAP gross margin rose to 85% (39% a year ago), and guidance implies further growth and margin expansion.

Why it matters: The artificial-intelligence-driven memory pricing upswing is ballooning results. The key question for investors is when this cycle peaks and how far it falls thereafter. We continue to expect downward pricing pressure in 2028 from new capacity additions, but our peak expectations have risen materially.

• Bulls will argue that high prices are now structural, supported by parabolic demand for AI infrastructure and long-term supply agreements. For us, it’s all about the supply/demand ratio (which we see narrowing in 2028), and we don’t see these long-term agreements as ironclad for a downturn.
• We believe these new, stronger long-term agreements help hedge against the harshness of a downturn but don’t prevent it. We believe that in a downturn, only a small portion of total contracted revenue is truly guaranteed by customers.

The bottom line: We raise our fair value estimate for no-moat Micron to USD 850 from USD 455, driven by significantly higher upcycle expectations. Shares rose 15% after hours on results, and remain overvalued to us. For long-term investors, we worry about a steep downcycle at the end of the decade.

• Our forecasts for the short-term upcycle, the cyclical peak, and the ensuing cyclical trough have all risen, driving up our valuation. We still expect a downturn in 2029, but believe prices will remain higher than pre-AI levels in the long term due to demand continuing to outpace supply.
• Our bearish call is not a call on AI demand, but simply an expectation that a glut of supply coming online in a short period will bring prices back down to earth. Memory chips trade like commodities, and even if demand remains high, an influx of supply should lower prices.