Micron MU: AI Driving Storage "Surge," Can It Break Through Cyclical Constraints?

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Micron (MU.O) released its fiscal Q2 2026 financial report (ending January 2026) after US stock market close on March 19, 2026 Beijing time. Key points are as follows:

1. Overall Performance: Micron’s revenue this quarter was $23.86 billion, up 75% quarter-over-quarter, exceeding the upgraded buyer expectations ($19.9 billion). The revenue growth was mainly driven by the dual boost from DRAM and NAND businesses, with both segments increasing over 70% quarter-over-quarter.

The company’s gross margin this quarter reached 74.4%, better than the upgraded buyer expectation (69%). Driven by a significant rise in storage prices, both DRAM and NAND prices increased over 60% this quarter.

2. DRAM Business: Achieved $18.8 billion this quarter, up 73.6% QoQ, mainly due to rising storage prices. The average DRAM price this quarter increased about 65% QoQ, with shipments up 5% QoQ.

Specifically: ① Traditional DRAM contributed the largest increment, expected to generate about $16 billion in revenue this quarter, up over 80% QoQ, with AI demand starting to boost DDR product demand; ② Dolphin estimates HBM revenue this quarter around $2.7 billion, up about $500 million QoQ, mainly benefiting from mass production and shipment of HBM3E and HBM4.

3. NAND Business: Achieved $5 billion this quarter, up 82% QoQ. The NAND revenue this quarter was mainly driven by price increases, with shipment volume up about 2% QoQ, and average selling price up about 78% QoQ.

Previously, due to the persistent downturn in the NAND market, industry capacity was reduced. However, with AI demand extending into NAND, supply-demand mismatch has driven a sharp rise in NAND prices.

4. Operating Expenses: As revenue expanded, the company’s R&D and sales & admin expense ratios continued to decline. Core operating profit this quarter was $16.1 billion, with core operating margin rising to 67.6%. The profit increase was mainly due to higher revenue and gross margin. Driven by significant increases in DRAM and NAND prices, gross margin will exceed 74%.

5. Micron (MU.US) Performance Guidance: For Q3 2026, revenue is expected around $32.75-$34.25 billion, better than market expectations ($26.8 billion). The company expects gross margin around 81%, better than market expectations (76%). The guidance for next quarter is notably better than market forecasts, still driven by continuous price increases in traditional storage products.

Overall View: Despite “explosive” earnings, management communication falls short of expectations

Micron’s revenue and gross margin this quarter significantly exceeded market expectations. With a slight increase in shipments, the performance growth was mainly driven by a substantial rise in storage prices.

The company previously reclassified its business segments: aside from the growth in cloud memory unit (CMBU), the core data center business (CDBU) and mobile & client business (MCBU) were the main drivers of high growth this quarter, propelled by sharp price hikes in traditional storage products.

The company’s guidance for next quarter greatly surpasses market expectations. Micron expects revenue of about $33.5 billion (±$750 million), up $9 billion QoQ, exceeding the market forecast ($26.8 billion); gross margin will reach about 81%, significantly above buyer expectations (76%), indicating further substantial price hikes in storage products next quarter.

Beyond recent earnings, key points about Micron include:

a) The long cycle of traditional storage: Nearly 80% of Micron’s revenue comes from DRAM, mostly from non-HBM products. The sharp increase in DDR prices has had a more pronounced impact on performance, and the industry remains in a broad price-up cycle.

As AI large models shift focus from training to inference, demand for DDR and similar products increases: ① DDR demand on CPU side, per Vera CPU, DDR demand will rise to 1.5TB (3 times Grace’s). ② Rubin CPX directly chose GDDR7 instead of HBM.

b) Certainty of AI storage demand: This storage cycle is mainly driven by incremental AI needs, with traditional PC and mobile markets remaining flat. Cloud giants are the ultimate buyers. Based on industry outlooks, capital expenditure in 2026-2027 will remain high.

Looking at NVIDIA’s product layout, the main contradiction in data centers has shifted from “computing power” to “storage.” From Blackwell to Rubin, DPU (NAND) and LPU (SRAM) are targeted at storage fields.

On one hand, Google’s TPU now supports FP8, meeting most inference needs; on the other hand, the rapid growth in computing power outpaces memory access speeds, creating a “memory wall.” Therefore, as models shift from training to inference, storage capacity becomes more critical than computing power.

c) Capital expenditure and outlook: The company has raised its 2026 capital expenditure forecast to $25 billion (from $20 billion last quarter), better than market expectations (~$22.5 billion). For 2027, management has significantly increased capex outlook but also mentioned in subsequent analyst briefings that capex may decline after 2027.

Considering Micron’s current market cap ($519.7 billion), its after-tax core operating profit for FY2026 is roughly 8x PE (assuming revenue growth +200%, gross margin 78%, tax rate 14.5%). Given the cyclical nature of the storage industry, historical high points during price hikes have PE ratios mostly between 5-15; current valuation remains on the lower end.

① Short-term view: Currently in a storage price-up cycle, combined with recent Samsung strike events, earnings are expected to continue exceeding expectations.

Samsung strike event: Samsung holds nearly 40% of the DRAM market. Recently, Samsung employees expressed increasing dissatisfaction with wage gaps compared to SK Hynix. Samsung’s union voted to strike for 18 days starting May 21. If halted, restarting production could take up to two months.

② Medium to long-term: Compared to earnings exceeding expectations, the market is more focused on “sustainable profitability,” including long-term contracts (lock-ins), customer demand security, and outlook beyond FY2027. If cloud giants sign long-term agreements to secure supply, it can further enhance future earnings certainty.

Management also responded to market concerns:

1) Long-term agreements: Upgraded from previous 1-year LTAs to 5-year Strategic Customer Agreements (SCA), with the first major customer signed. More about deepening cooperation than locking in.

2) Customer demand security: Micron’s mid-term demand from key customers is only 50-66%, with no significant change from three months ago.

3) Outlook for FY2027: The company believes supply-demand gap in the storage industry will persist into 2027, but cannot predict beyond that. Capex in FY2027 will be significantly increased, but subsequent analyst briefings also mentioned that capex may decline after 2027. (Dolphin will release detailed notes later)

From company and industry outlooks, growth in 2026-2027 appears relatively certain. Customer demand security remains stable; the company is cautious about performance beyond 2027, mentioning the possibility of capex reduction.

Compared to the “explosive” short-term earnings, the market is more eager for the storage industry to “break free or stabilize” from cyclical constraints. Based on management’s capex outlook, Micron’s valuation still needs to be viewed through a “cyclical stock” lens, which limits PE expansion potential.

Below is Dolphin’s detailed analysis of Micron’s earnings report:

1. Overall performance: Revenue & gross margin far exceeding expectations

1.1 Revenue

Micron’s FY2026 Q2 total revenue was $23.86 billion, up 75% QoQ, surpassing market expectations ($19.9 billion). The quarter-over-quarter growth was driven by both DRAM and NAND.

From downstream segments, data center and networking contributed the most growth; mobile and PC segments also saw significant increases due to traditional storage price hikes.

Looking ahead to next quarter, the company expects revenue of about $32.75-$34.25 billion, up approximately 40% QoQ, better than the market forecast ($26.8 billion). Dolphin believes Micron is still in a storage price-up cycle, with next quarter’s growth mainly driven by traditional storage price increases.

1.2 Gross Margin

Micron’s FY2026 Q2 gross profit was $17.8 billion, with a gross margin of 74.4%, up 18.4 percentage points QoQ. The margin increase was mainly driven by rising prices of traditional storage products.

Despite current inventory of $8.27 billion (up 0.8%), driven by data center demand, inventory turnover days decreased to 121 days, relatively low.

The company expects next quarter gross margin around 81%, continuing to rise by 6.6 percentage points, indicating ongoing price hikes for traditional DRAM and NAND products. Considering potential Samsung factory strike, gross margin may surpass guidance next quarter.

1.3 Operating Expenses

Micron’s FY2026 Q2 operating expenses were $1.62 billion, up 7.3% QoQ. Due to faster revenue growth, operating expense ratio decreased to 6.8%.

Core operating profit this quarter was $16.16 billion, mainly driven by revenue growth and gross margin expansion. Overall, stable operating expenses mean profit growth is primarily due to revenue and gross margin improvements.

2. Business Segment Breakdown: Traditional storage price hikes are the main growth driver

Latest financials show DRAM and NAND remain the most important revenue sources, with DRAM accounting for about 80%.

Additionally, Micron reclassified its revenue segments (previously CNBU, SBU, MBU, EBU) into CMBU, CDBU, MCBU, and AEBU. Data center and cloud services now account for over 50%, highlighting the company’s focus on these areas.**

2.1 DRAM

DRAM is the largest revenue contributor, nearly 80%. This quarter, DRAM revenue reached $18.77 billion, up 74% QoQ. The average DRAM price increased about 65%, with shipments up roughly 5%.

Specifically, Dolphin estimates HBM revenue this quarter around $2.7 billion, up about $500 million QoQ, while DDR and other products generated about $16 billion, up over 80%.

DRAM remains core, especially HBM and DDR.

1) HBM:

The company does not disclose HBM quarterly separately. Based on industry and company info, Dolphin estimates HBM revenue this quarter around $2.7 billion, up about $500 million.

The company’s HBM products are in second supply position behind SK Hynix. With Samsung’s HBM3E passing NVIDIA certification, the HBM market will be redistributed among the three.

As NVIDIA’s Rubin GPU and AMD’s MI400 will feature HBM4, the focus will be on HBM4 development and shipments to gain more market share.

2) DDR and other products:

Quarterly DDR and similar product revenue is about $16 billion, up over 80%. Despite weak demand from mobile and traditional markets, data center and AI demand have driven significant price increases.

As AI models shift from training to inference, demand for DDR and similar products increases:

① CPU-side DDR demand, per Vera CPU, DDR demand will rise to 1.5TB (3x Grace). ② NVIDIA Rubin CPX chose GDDR7 over HBM, further boosting DDR demand.

2.2 NAND

NAND is the second-largest revenue source, about 20%. This quarter, NAND revenue was $5 billion, up 82% QoQ. The shipment volume increased about 2%, but average selling price surged approximately 78%.

Previously, AI Capex mainly boosted NAND in the HBM segment, leading to weaker NAND performance compared to DRAM. As AI inference demand grows, NAND benefits from supply-demand shifts.

Supply-demand changes include: on the supply side, NAND market was subdued, leading to capacity cuts; major manufacturers prioritized DRAM expansion over NAND. On the demand side, AI industry increased NAND needs, with NVIDIA Rubin adding NAND layers.

NVIDIA added “Inference Context Storage Platform” (ICMS) in Rubin: dedicated context storage that moves KV Cache from HBM to more cost-effective storage, freeing HBM bandwidth for computation, reducing inference costs.

Each Rubin GPU can expand NAND by 16TB as external memory; a single NVL72 can support up to 1152TB NAND expansion.

Dolphin’s previous articles on Micron:

Storage Hot Topics:

Jan 14, 2026: “99% Idle Computing? Inference Era, Storage Capacity More Attractive Than Computing Power!”

Jan 6, 2026: “Storage Surge, AI Storage Super Cycle — How Amazing Is It?”

Earnings Season:

Dec 18, 2025: “Micron (Analyst Briefing): Cash Used to Expand Production, HBM4 Yield Improving Faster”

Dec 18, 2025: “Micron (Minutes): Gross Margin Continues to Rise, Rate Slowing”

Dec 18, 2025: “Micron MU: AI Ignites Storage Cycle?”

Sep 24, 2025: “Micron (Minutes): Full Guidance, AI Wave Reaches Traditional Semiconductors?”

Sep 24, 2025: “Micron: AI Capex Frenzy, Storage Super Cycle Coming?”

Jun 26, 2025: “Micron (Minutes): HBM4 Samples Sent, HBM3E 12Hi Mass Production”

Jun 26, 2025: “HBM Volume Approaching, Can Micron Keep Up?”

Mar 21, 2025: “Micron (Minutes): HBM Continues Growth, 2026 Revenue Higher”

Mar 21, 2025: “Micron: ‘East Wind’ Coming, But Risks Remain”

This article’s risk disclosures and statements: Dolphin’s Disclaimer and General Disclosures