Micron Technology’s margins have swelled thanks to an extreme imbalance of supply and demand for its memory chips. That has allowed the company to raise prices dramatically without incurring much extra cost.
Investors, though, are focused on the future. Wall Street will be looking to see whether Micron can sustain gross margins above 80% when it reports Wednesday after the market close, according to Susquehanna analyst Mehdi Hosseini, but “the more important issue” is whether it can keep its operating margins in the 70% to 75% range over the next few quarters, and potentially years.
Hosseini is modeling for the memory-chip maker’s operating margins to fall to 60% toward the end of 2028, but he sees “two key wild cards” that will eventually determine what a sustainable operating margin and valuation multiple look like.
One trend to monitor is something known as key-value cache offloading. The impact that it will have on both the mechanics and incremental demand for dynamic random-access memory and NAND is not yet clear, Hosseini said in a Monday note. The technique is used to save memory while running large artificial-intelligence models, but it does not impact overall memory needs.
Demand for triple-level cell NAND has improved, Hosseini said, referring to a type of flash memory used in solid-state drives. The same hasn’t happened yet for quad-level cell NAND, however, he said, “reflecting ongoing uncertainty around the ultimate configuration of KV cache offloading.” The latter type of flash memory stores more bits of data per memory cell than the former.
Hosseini said that uncertainty is limiting the visibility memory makers have on demand and has “delayed incremental DRAM and NAND wafer capacity additions” that were expected to come online starting in the second half of next year.
The addition of wafer capacity is the second wild card Hosseini sees, and he expects supply shortages of DRAM and NAND to continue throughout 2027.
Hosseini sees Micron’s annualized earnings per share reaching $160 in fiscal 2027, whereas it was $8.29 at the end of fiscal 2025. His $1,750 price target for Micron’s stock represents upside of about 47% from recent levels on Monday afternoon, when shares were up about 5%.
Micron has added more than $1 trillion to its market capitalization this year, according to Dow Jones Market Data. The company ended 2025 with a market cap of $321 billion and had reached a $1.34 trillion valuation as of Monday afternoon.
Morgan Stanley analyst Joseph Moore raised his expectations for Micron’s fiscal third-quarter numbers in a Monday note, saying that the supply-demand imbalance is significantly increasing average sales prices for DRAM and NAND. For the current quarter, Moore said he expects pricing to rise in the 20% range sequentially for both types of memory.
Micron’s strategic customer agreements are another key focus area, Moore said. He expects the company to announce that it has closed more deals in addition to the one five-year agreement it has so far but said he “wouldn’t necessarily expect more clarity on the terms” considering that it is likely talking to many customers.
Moore said the customer agreements “are important for market sentiment around the case for further multiple expansion,” meaning the potential for the stock to fetch a higher valuation. He acknowledged that investors could react negatively without enough clarity into the deals.
Needham analyst N. Quinn Bolton said that because long-term agreements like Micron’s SCAs give memory makers more visibility into demand over a multiyear period, “investors should be comfortable paying a higher valuation multiple for memory stocks.”
He raised his price target for the stock to $1,550 in a Monday note.
Comments