Key Points
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Micron’s fiscal fourth-quarter guidance calls for a gross margin of about 86%.
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The company’s margin record before this boom, 61% in fiscal 2018, fell by more than half within four quarters.
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Management says the fiscal fourth-quarter outlook reflects a meaningful moderation in the rate of price increases.
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When Micron Technology (NASDAQ:MU) issued its fiscal fourth-quarter outlook in late June, one number stood out even in a report full of them: a gross margin of about 86%, on revenue of $50 billion, plus or minus $1 billion. Put another way, management expects to spend only about 14 cents of each sales dollar making the chips it sells — in an industry where margins have always swung violently with memory prices.
The guided quarter is already over. Micron’s fiscal fourth quarter of 2026 ended in early September, and the company reports the results on Wednesday, Sept. 30, after the market closes.
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How long can a memory maker keep a margin like that? The company’s own reported history offers a blunt answer.
Image source: Micron.
The old ceiling was 61%
Capturing how quickly this boom has escalated, Micron’s fiscal 2026 third quarter (ended May 28) produced a gross margin of 84.6%, up from 74.4% the quarter before and 37.7% a year earlier. The company’s latest quarterly filing credits the surge to demand from artificial intelligence data centers, which it says is growing faster than the industry can add supply. The higher prices have lifted profitability across its whole portfolio.
For scale, the fiscal 2018 memory boom (the company called it a record year) topped out at a 61% gross margin in its final quarter. The upcycle after that one peaked at 47.3% in the quarter ended in early September 2021.
In other words, Micron’s best quarters across two prior booms never came within 20 percentage points of where the business sits today. After 10 years covering tech stocks, I haven’t seen anything like it.
The rest of the industry has the same record. Rival SK Hynix (NASDAQ:SKHY) closed 2018 with record annual results, including a 52% operating margin. And a year later, its operating profit had fallen 87%.
Every prior peak faded fast
The 61% quarter was fiscal 2018’s last. Three quarters later, Micron’s gross margin was 38.2%. A quarter after that, it was 28.6% — less than half the peak, about a year after it was set. And the margin didn’t recover once the slide stopped. Two years after the peak, it stood at 34.1%.
The next boom ended even harder. From its 47.3% peak, the margin was still holding at 47.2% two quarters later. And four quarters after that, it was negative 32.7%.
Both times, once the slide began, the margin gave up more than 30 percentage points within about a year. This is the history an 86% guide is up against.
Can contract floors change the pattern?
Notably, management isn’t calling for prices to keep climbing at the recent pace. The guided margin of about 86% sits little more than a point above fiscal Q3’s 84.6% — and that quarter had jumped 10 points from the one before.
“Our fiscal Q4 gross margin outlook reflects a meaningful moderation in the rate of price increases,” chief financial officer Mark Murphy said in his prepared remarks for the company’s June earnings call.
What’s different this time, Micron argues, is the contracts. The company has signed 16 customer agreements running three to five years. Its quarterly filing describes them as take-or-pay deals, most with either fixed pricing or contractual price floors and ceilings.
Even more, CEO Sanjay Mehrotra said in the same prepared remarks that the floor prices alone enable a gross margin “well above our peak quarterly margins in any past cycle.”
Demand may stay strong for a while, too. Mehrotra told analysts he expects industry supply to improve only gradually in 2028. The contracts are new, though. And no downturn has tested the floors yet.
The market seems to have noticed. Analysts’ consensus estimates point to about $158 in earnings per share for fiscal 2027, which started in early September.
At about $1,070 per share as of this writing, that comes to about 7 times forward earnings. Arguably, it’s the kind of multiple investors reserve for earnings they don’t expect to last.
Ultimately, I’d take management at its word in both directions. The price surge that built this margin is slowing, and the floors under the next downturn are stronger than anything Micron has had before. But I’d value the company as if 86% is this cycle’s peak, not its new normal. Micron has never held a margin peak for long, and I wouldn’t plan on this one being different.
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Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.
