As someone who looks at hundreds of earnings reports a year, there are times an earnings report shatters expectations like an Olympian breaking a record or an athlete leaving no doubt who is the best in the game. Micron did this by dropping an earnings report so strong on fundamentals that I cannot recollect seeing one quite like this.
Micron blew the doors off with revenue growth of 196.3% YoY and up 75% QoQ for a beat of 22.3% on a massive revenue base of about $24 billion a quarter. The forward fiscal Q3 growth is eye-watering at 260.2% YoY and 40.4% QoQ. This is nearly 100 points higher than what analysts had slated for fiscal Q3 with consensus at 150.2% growth YoY.
The $10.2 billion sequential increase is nearly unprecedented outside of Nvidia’s most recent quarter posting $11 billion QoQ growth – yet, let’s not forget that Nvidia is the world’s most valuable company.
Here is what management stated about this record-breaking quarter:
“Quarterly revenue nearly tripled versus one year ago, and revenue for DRAM, NAND, HBM (high-bandwidth memory) and each business unit reached new highs. Our fiscal Q3 single quarter revenue guidance exceeds the full year revenue for every year in our company’s history through fiscal 2024. For fiscal Q3, we anticipate exceptional records across revenue, gross margin, EPS and free cash flow.”
To also help illustrate just how impressive this earnings report was, consider that Micron was not supposed to see $33 billion in a single quarter until FQ1 2028 (November of 2027) yet following a second quarter of $10B sequential growth, will now see this revenue in the quarter ending in May of 2026.
As incredible as the revenue growth is; the margins are arguably even more incredible at an 81% gross margin and 76% operating margin guide for the next quarter.
So, why would the market be selling the report after hours? Well, to be prudent, Micron was reporting a steep, negative gross margin of (9%) in FY2023 with one quarter as low as (32.7%) in FY23. Thus, the question of whether we are seeing a cyclical top or a structural shift in memory is a very valuable question to answer, and the importance of this broader question is only further reinforced by the results we saw this evening.
Supply Constraints and Product Road Map Combo Can Create Defensibility
Although the market may be fatigued at hearing there are supply constraints, that dynamic is often what offers the highest level of defensibility for a supplier like Micron.
Regarding AI memory, Micron stated they began volume shipments of HBM4 36GB (12-high) in 1H26 designed for Vera Rubin and they expect this to reach mature yields faster than HBM3e. Higher yields typically mean more sellable HBM per production run and typically support stronger margins. Additionally, Micron has sampled 48GB (16-high) HBM4 stack with HBM4e in development with a planned 2027 volume ramp, leveraging the 1y DRAM node in the product road map for sustained data center growth.
On the earnings call, management emphasized that AI is trending toward more reasoning, longer context windows and agentic workflows – all of which require more DRAM capacity and bandwidth. As a result, GPUs and ASICs are expected to need increasing amounts of HBM plus DDR5/LPDDR to support training and inference.
When it comes to HBM, management stated they expect to see robust growth at least through 2027: “And we continue to feel like we are in an extended space of robust industry demand that obviously, due to HBM being part of these numbers with its trade ratio is just stressing the entire industries and certainly our capabilities to be able to meet those demand numbers. So you're right. I mean, these numbers, at least in the foreseeable future are all supply limited numbers rather than the actual level — true level of demand. So yes, I mean, that's sort of the environment we are in. We do expect that next year, again, we will have a fairly robust level of growth in calendar '27. But yes, we are not providing a long-term number beyond that commentary.”
On storage, Micron will benefit from rising SSD share from vector databases and KV-cache offload (we’ve covered this in the past here). It’s clear from management commentary that they see no end in sight to the supply shortages on SSD:
“And we continue to see those shortages for the foreseeable future. That has been another driver. So when we put all of these together, the NAND market is significantly undersupplied to the demand in the data center, and that demand continues to escalate in part driven by KV cache, but also driven by just the insatiable appetite that these AI servers have to have fast storage capability available as these systems get deployed more and more. And so the outlook is really strong. And as we have mentioned earlier, our portfolio is incredibly well positioned to continue to gain share in that space, including our KV cache applications, by the way, yes.”
The company is in high-volume production of G9 NAND PCIe Gen6 data center SSDs and cited strong adoption of its 122TB SSD that “delivers 16 times the sequential read throughput per watt of a capacity-matched HDD configuration.”
In the most recent earnings report, Micron saw share gains in SSD for its fourth consecutive year in 2025 with management stating that NAND revenue more than doubled sequentially in fiscal Q2 to a record.
It was also confirmed that NAND demand significantly exceeds supply, which is fairly evident in the following pricing strength: “Fiscal Q2 NAND revenue was a record $5.0 billion, up 169% year-over-year, and represented 21% of Micron’s total revenue. Sequentially, NAND revenue increased 82%. NAND bit shipments increased in the low-single-digit percentage range. Prices increased in the high-70s percentage range driven by tight NAND industry conditions and included favorable mix.”
Counterpoints
Memory can be stubbornly cyclical, and the market appears to be discounting the familiar pattern Micron has faced in past cycles where peak shipments were followed by a sharp reversal ahead of pricing and demand normalizing.
Management commentary supports Micron being in a sustained uptrend as 2026 is supply-constrained and greatly limited by DRAM and NAND supply. However, despite the outsized demand and strong product road map, Micron will likely see peak sales before Nvidia’s Vera Rubin sees peak sales given HBM and data center DRAM sits earlier in the supply chain. Therefore, there can be air pockets tied to Nvidia’s GPUs shipping in volume even when the overall trend remains intact.
Micron is also exposed to PC/consumer and traditional server revenue.
Micron Capex Increases
The CFO stated FY26 capex is raised to over $25B from previous estimates for $20B with some of the new fabs being greenfield sites. Although a glut of inventory is always on top-of-mind for a memory player that aggressively adds more capacity, there is likely more risk to Micron not seizing the opportunity to remain #2 with South Korea being particularly strong competitors. There are some facilities that are expansions yet many of these projects will not translate into meaningful revenue shipments until FY2028.
In terms of if Micron could be adding more capacity at a peak, management felt confident this is not the case: “So we are very excited about that, and our supply is nowhere close to being able to meet the demand that we see for the foreseeable future.”
The Shift to Strategic Customer Agreements (SCAs)
Micron discussed shifting from long-term agreements to strategic customer agreements (SCAs): “We continue to work with customers on strategic customer agreements — or SCAs — that are different from prior LTAs (long-term agreements) and have specific commitments over a multi-year time horizon for improved visibility and stability in our business model. These SCAs also provide customers greater certainty to plan their businesses while reinforcing long‑term engagement across our broad product portfolio. We are excited to have signed our first five-year SCA.”
If I had to point to one thing that could be causing the softer price action, it would be the read-through that SCAs could lead to a cap in pricing during a surge (like what we are seeing now in surging DRAM and NAND pricing).
The upside to SCAs is they lock in supply and volume to smooth-out lumpiness in a cyclical industry yet could limit upside in exchange for that visibility.
There were many questions on SCAs in the call – in fact, this topic dominated the Q&A session, here is one that encapsulates the concern around SCAs limiting upside in pricing yet also helping to remove the effects of a cyclical low, as well:
“Sreekrishnan Sankarnarayanan
TD Cowen
Got it. Thanks for that, Mark. And then a quick question for Sanjay on the SCA. Congrats on your first 5-year SCA. How different is it from an LTA? Is this a multi-year volume and price commitment, or does the price get negotiated every year? And also, how to think about cancellation terms on the SCA in case the cycle slows down during the timeframe?
Sanjay Mehrotra
CEO, President & Chairman
Thank you for recognizing us for the first SCA that we have completed here. And as you noted, SCA is multi-year agreement, and we noted that in our remarks as well. LTAs have tended to be typically 1-year agreement. And of course, in this environment of extremely tight supply outlook in the foreseeable timeframe as well, of course, our customers are very motivated in order for their own planning purposes and for their better predictability to have these structural strategic agreements with us. And of course, these agreements are really meant to bring stability and greater visibility into our business model as well. We have completed 1 SCA, so we are not going to be getting into the specifics here or these agreements. I'm sure you can appreciate that these SCAs are confidential in nature. But of course, these SCAs are meant to achieve the objectives for the customers in terms of their ability to plan and be able to count on supply commitments that are in the agreements, but also for us to be able to count on specific commitments that are there from the customers. And these are meant to go across the periods when the industry is very tight versus other parts of the industry environment as well. So that's why they're long-term agreements, and they have robust terms in them for us as well as for our customers.”
The correct readthrough, if I had to guess, is that Micron is in the driver’s seat and is able to lengthen the LTA commitments to now 5-year terms for the company’s benefit.
Financials
By Royston Roche
Revenue Growth of 196%
Micron’s Q2 FY2026 ending February revenue grew by an impressive 196.3% YoY and 74.9% QoQ to a record $23.9 billion, beating estimates by a solid 22.3%. Revenue growth accelerated by nearly 140 percentage points from 56.7% YoY and 20.6% QoQ growth in the previous quarter. The $10.2 billion sequential increase was the largest in the company’s history and was primarily driven by strong AI memory demand.
Management also provided a strong FQ3 revenue guidance of $33.5 billion, implying a YoY growth of 260.2% and 40.4% QoQ. The revenue guidance beat consensus estimates by a stellar 44%. Analysts expect strong revenue growth to continue and expect FQ4 revenue to grow by 233.8% YoY to $37.77 billion.
DRAM Revenue Grew by 207%
Micron’s FQ2 DRAM revenue grew by 207% YoY and 74% QoQ to a record $18.8 billion. Revenue growth accelerated by 138 percentage points from 69% YoY and 20% QoQ growth in the previous quarter. Bit shipments were up mid-single digits sequentially. Average selling prices increased in the mid-60s percentage range sequentially, driven by tight market conditions and also due to favorable mix.
NAND Revenue Grew by 169%
FQ2 NAND revenue grew by 169% YoY and 82% QoQ to a record $5.0 billion. Revenue growth accelerated by 147 percentage points from 22% YoY growth in the previous quarter. NAND bit shipments increased in the low-single-digit percentage range sequentially. Average selling prices increased in the high-70s percentage range sequentially, driven by tight NAND market conditions and favorable mix.
Revenue by Business Units
CMBU Revenue Grew by 163%
Micron’s Cloud Memory Business Unit (CMBU) FQ2 revenue grew by 163% YoY and 47% QoQ to a record $7.75 billion. Revenue growth accelerated by 63 percentage points from 100% YoY growth and 16% QoQ growth in the previous quarter. The strong sequential growth was primarily driven by an increase in prices and favorable mix.
CDBU Revenue Grew by 211%
Core Data Center Business Unit (CDBU) FQ2 revenue grew by 211% YoY and 139% QoQ to a record $5.69 billion. Revenue growth accelerated sharply from 4% YoY and 51% QoQ growth in the previous quarter. The strong sequential growth was primarily driven by higher pricing and growth in bit shipments.
MCBU Revenue Grew by 245%
Mobile and Client Business Unit (MCBU) FQ2 revenue grew by 245% YoY and 81% QoQ to a record of $7.71 billion. Revenue growth accelerated sharply from 63% YoY and 13% QoQ growth in the previous quarter. The strong sequential growth was driven by higher pricing, partially offset by lower bit shipments.
AEBU Revenue Grew by 162%
Automotive and Embedded Business Unit (AEBU) FQ2 revenue grew by 162% YoY and 57% QoQ to a record $2.71 billion. Revenue growth accelerated sharply from 49% YoY and 20% QoQ growth in the previous quarter. The strong sequential growth was driven by higher pricing, partially offset by lower bit shipments.
Gravity-Defying Margins
Micron guided for a gross margin of 81% for FQ3. The record gross margin was primarily driven by higher memory prices, cost controls, and favorable revenue mix. The margins are so high that an analyst expressed concerns that perhaps Micron’s customers would be upset by it. Management replied that the demand supply imbalance is leading to higher memory prices. Also, customers are recognizing the higher value as high performance memory helps in driving down costs and improves the overall AI performance.
Q: Vivek Arya (Analyst)
“And for my follow-up, Mark, I wanted to revisit this 81% gross margin guidance. I appreciate you're not giving a specific forward view. But what do you — what has happened in kind of prior historical peaks where Micron's margins, I think, peaked in the low 60s, I believe, so what is the difference between the prior situations versus now?
What have those kind of historical precedents indicated to you about how the trajectory of gross margins can be over the next several quarters? How do customers — do customers start to react differently when they see these level of gross margins and what is a very, very important input into their AI silicon?”
A: Mark Murphy (CFO)
“Vivek, I would say that keep in mind that the industry is supply constrained. So — and conditions will remain very tight, and that's beyond '26. So that certainly supports the near-term, medium-term pricing… We're investing in capacity, and we're also increasing R&D to continue to advance the technology and improve the value of memory. And we believe these will help with margins over time, and I think customers are recognizing that and entering into these agreements.”
- FQ2 gross profits grew by 499.2% YoY to $17.76 billion. Gross profit margin was 74.4%, an improvement of 37.6 percentage points YoY and up 18.4 percentage points sequentially. It beat the management guidance of 67%. The adjusted gross margin improved by 37 percentage points YoY and 18.1 percentage points sequentially to 74.9%. The strong gross margin was driven primarily by higher pricing, favorable mix, and cost controls. Management has guided further improvement of gross margin to 81% in the next quarter.
- FQ2 operating profits grew by 810% YoY to $16.14 billion. Operating margin came at 67.6%, an improvement of 45.6 percentage points YoY and 22.6 percentage points sequentially. It beat the management guidance of 58.7%. The adjusted operating margin improved by 44.1 percentage points YoY and 22 percentage points sequentially to 69% driven by operating leverage. Management has guided further improvement of operating margin to 76.2% and adjusted operating margin to 76.8% in the next quarter.
- FQ2 net income was $13.79 billion or 57.8% of revenue compared to $1.58 billion or 19.7% of revenue in the same period last year. Adjusted net income was $14.02 billion or 58.8% of revenue compared to $1.78 billion or 22.1% of revenue in the same period last year.
Adjusted EPS Grew by 682%
Micron’s FQ2 GAAP EPS grew by 756% YoY to $12.07, beating estimates by 36.3%. Adjusted EPS grew by 682.1% YoY to $12.20, beating estimates by 36%, primarily driven by higher memory prices, cost controls, favorable revenue mix, and operating leverage.
Management also provided a strong guide for the next quarter. GAAP EPS guide is $18.90, implying a YoY growth of 1025%. While the adjusted EPS guide is $19.15, implying a YoY growth of 902.6% YoY, beating estimates by 77.8%.
Cash Flow and Balance Sheet
Micron’s strong profits are leading to higher cash flows.
- FQ2 operating cash flows grew by 202% YoY to $11.9 billion with an operating cash flow margin of 49.9% compared to 49% in the same period last year.
- FQ2 adjusted free cash flows grew by 705% YoY to $6.9 billion with an adjusted free cash flow margin of 28.9% compared to 10.6% in the same period last year. Capex grew by 61.3% YoY to $5.0 billion. For FQ3, management has guided a capex of $7.0 billion and expects adjusted free cash flows to roughly double sequentially.
- Cash and investments were $16.6 billion and debt of $10.14 billion compared to $12.02 billion and $11.76 billion in the previous quarter. Micron repurchased shares worth $350 million and also reduced debt by $1.6 billion in the recent quarter.
- Inventory increased marginally by 0.6% sequentially to $8.27 billion.
Conclusion:
Micron’s record-breaking fundamentals are going far beyond what this company has reported before during previous peaks as the “normal” memory swings are being eclipsed by AI-era capacity scarcity.
The difference between the AI cycle and the cyclical peaks in the past is that Micron is combining record fundamentals with improving visibility through multi-year customer agreements and a strengthening product roadmap (HBM4/HBM4E, 1γ DRAM, Gen6 SSDs).
Management repeatedly stated the market is supply constrained beyond 2026, with new fabs coming online in 2028. Meanwhile, longer context windows, reasoning, and agentic workloads will keep HBM and DRAM demand elevated. NAND is proving it's no longer an afterthought with historic pricing surges that are causing heavyweight customers to seek more stability with SCA agreements.
While I do believe SCAs could be the reason for softer price action, it’s my conclusion at this time that memory remains an important strategic asset that results in Micron being in the driver’s seat during a sustained upward trend, albeit with the occasional lumpiness inherent to supply chains. In that sense, I foresee Micron becoming more secular than the market has historically treated it.
Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in MU at the time of writing and may own stocks pictured in the charts.
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