Micron (MU) : If It Loses Its Allure, What Will The Stock Holders Do ?
Micron Technology (MU) stock has returned 557% over the twelve months, against 16.0% for the S&P 500. The gain came during a shortage of memory chips, and management said on its September 30 call that it cannot see when supply and demand will balance. Yet the stock has barely moved since that call, amid worries over chip cycles and margins. So how seriously should a Micron holder take those worries?
Micron’s Gross Margin Has Nearly Doubled In A Year
Seriously enough, because the profit Micron earns today is new. Its gross margin was 73% over the latest twelve months, against 37% a year earlier. The year before that it was 11.4%, and Micron lost money two and three years ago.
On the September 30 call, management was asked whether margins would change in 2028 from the level it implied for 2027. Management answered that it expects the market to stay tight through 2028, though start-up costs would partly offset higher prices. Its own first-quarter guidance already factors in a double-digit change in cost for both DRAM and NAND memory chips.
What Micron Would Earn At Last Year’s Margin
Micron would earn far less than it does now. It kept 55.9% of its revenue as net income over the latest twelve months, against 18.4% a year earlier. At that earlier margin, the same $90.3 billion of revenue would have produced about $16.6 billion of profit. Micron actually earned $50.5 billion. Lower prices would also mean lower revenue, so that sum is on the generous side.
You pay 24.0 times earnings for the stock, against 21.5 for the S&P 500, but that multiple is on the profit of the latest twelve months. And Micron stock has fallen harder than the market when investors turned cautious. It lost 49% in the 2022 inflation shock, against 24% for the S&P 500.
If Prices Turn, Micron Has Contracts And Cash
More than 75% of Micron’s shipments for the year are already committed, management said. Micron has also signed long-term agreements with customers. About three quarters of the revenue under them has a defined pricing framework, mostly with a floor and a ceiling. The other quarter is open to negotiation or moves with market prices.
Its finances would not be in question either. Micron holds $19.6 billion more cash than debt. Its debt equals 0.5% of its market value, against 21% for the S&P 500. So an end to the shortage would change how much Micron earns, not whether it can pay its way.
Management does not expect the shortage to end soon. Ending the shortage would take new supply arriving faster than demand grows, and Micron’s own Idaho facility is due to produce its first wafers in mid-2027. Micron guided a gross margin of 85.95% at the midpoint for fiscal Q1 2027. A reported margin for that quarter clearly below the guide would be the first sign of the margin slipping from what management expects.
Modify on 2026-10-06 23:37
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