Micron Just Broke the Mold for Artificial Intelligence (AI) and Its Stock is Soaring
The semiconductor specialist's blistering growth has reached new heights.
By CPA, Danny Vena
After years of being the wallflower, Micron Technology (MU 1.32%) has taken center stage. The company's flash memory and storage chips are critical to the processing of artificial intelligence (AI), which continues to drive unrelenting demand.
Ahead of Micron's financial release after the market close on Wednesday, investors were sitting on the edge of their seats to see if there was any truth to reports of an AI slowdown. The company put those rumors to rest, delivering record revenue, gross margin, and earnings per share (EPS) -- and is poised to smash those records again next quarter.
Blockbuster results are just the beginning
Micron reported the results of its fiscal 2026 third quarter (ended May 28), and both sales and profit growth were off the charts. The company generated revenue of $41.5 billion, up 346% year over year and 73% sequentially. This resulted in adjusted earnings per share (EPS) that soared more than 13 times (not a typo) to $24.67.
For context, analysts' consensus estimates were calling for revenue of $35.9 billion and EPS of $20.86, so Micron simply crushed Wall Street's expectations.
CEO Sanjay Mehrotra acknowledged the unprecedented demand, saying, "Micron’s record fiscal Q3 financial results and even stronger outlook for Q4 reflect the strategic value of memory in the AI era."
The company's cloud memory segment led the charge, as revenue of $13.7 billion surged 306% year over year. Revenue from Micron's core data center business unit jumped 653% to $11.5 billion, while revenue from its mobile and client business segment climbed 254% to $11.5 billion. Not to be outdone was the automotive and embedded segment, with revenue of $4.6 billion, up 311%.
Micron continued to enjoy significant margin expansion that fueled its record profits. The company's gross margin more than doubled, jumping 4,690 basis points to 84.6% from 37.7% in the prior-year quarter. Micron's cash generation was off the charts, as operating cash flow of $25.4 billion increased 451% year over year and adjusted free cash flow of $18.3 billion soared 839%.
Management predicts that its growth will accelerate further. For the fourth quarter, Micron is guiding to revenue of $50 billion, representing 342% growth. The company's margin expansion is also expected to continue, climbing to 86% at the midpoint of its guidance, driving adjusted EPS of $31.00, a 10x increase. That's leagues ahead of Wall Street's expectations for revenue of $43.45 billion and EPS of $25.43.
One of the most telling pronouncements was regarding the imbalance between supply and demand (emphasis mine): "We now expect supply-demand conditions for both DRAM and NAND to remain tight beyond calendar 2027."
The company continued its quarterly dividend of $0.15 per share, payable on July 21 to shareholders of record as of July 6. Its current yield is less 0.10%, and the company is spending less than 3% of its profits to fund the dividend, so there is plenty more where that came from. Tucked away in Micron's investor presentation was this nugget: "Over time, we expect to return 100% of our excess cash to shareholders."
Yet even in the face of these blistering results, the stock is still remarkably cheap, selling for 17 times forward earnings.
Investors clearly appreciated the results, bidding shares up 15% in after-hours trading, as of 6:45 p.m. ET.
The popular narrative about the perils of AI notwithstanding, Micron stock remains a buy.