To The Moon

Micron Technology (MU) Investment Thesis

Micron Technology faces moderating memory price increases as supply and demand rebalance, but AI data center demand remains robust.

MU's gross margins are supported by long-term supply contracts, with 40% of revenue soon tied to fixed or capped pricing.

Capacity expansions—including Idaho-1, Singapore HBM, and Tonglou—will drive the next growth phase starting FY'27 amid industry-wide supply increases.

Key risks include labor negotiations in Taiwan, potential customer inventory build-ups, and margin sensitivity in non-data center segments.

Dell (DELL) COO captured this sentiment, noting that some public sector customers have fixed budgets and will adjust purchase volumes accordingly. Other customers are reportedly changing the configuration of their products to optimize memory capacity.

That is not to say that memory prices will go down. Demand still exceeds supply, and AI demand is pulling capacity from other sectors. However, it suggests that the pace of unit price growth, which lifted Micron's (MU) sales and profitability in the past few months, can't be relied on to drive growth going into FY'27.

MU has prepared investors for this eventuality.

In FQ4'26, MU's management expects the memory price tailwinds to slow down, despite demand still exceeding supply.

Our fiscal Q4 gross margin outlook reflects a meaningful moderation in the rate of price increases – MU Q3'26 Earnings Call

When asked how management reconciles decelerating price growth and widening supply/demand imbalance during the KeyBanc Technology Leadership Forum, MU's Chief Business Officer noted that MU is optimizing prices at levels that sustain long-term demand.

There is a limit to what Micron can charge customers, and price-driven growth will likely decelerate going forward.

But MU still could generate meaningful returns to investors without price-growth support. The next leg of MU's growth is volumes, and despite the capacity expansion, reports indicate that demand will still exceed supply, supporting current prices. During the KeyBanc Technology conference, management said that it expects the supply to be tighter than it already is going into 2027.

Secondly, even if supply/demand falls off balance because of capacity expansion, MU still has SCAs to fall back on, which tie a significant portion of revenue to long-term supply agreements with price floors, fixed-pricing, or indexed pricing contracts, in addition to other accommodative terms.

We expect gross margins from our strategic customer agreements with price bands, even at floor pricing levels, to yield gross margins well above our peak quarterly margins in any past cycle – MU FQ3'26 SEC Filings

In FY'27, Wall Street expects adjusted EPS to more than double, reaching $158/share. At the current price, this translates to roughly 7x PE. That's an earnings yield of 14%, which is pretty attractive considering the SCA multi-year protections and growing demand on the back of the secular AI trends. So, there is a strong valuation argument here, augmenting the growth story.