GM. This is Milk Road Stocks, the newsletter that makes quarterly earnings season feel like the playoffs.
Today we’re breaking down what to expect from Micron’s earnings - and what they need to pull off in order to keep winning.
First, a quick detour.
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EVERYONE EXPECTS MICRON TO CRUSH IT 🧠
Micron reports earnings after the bell today, and the bar it has to clear is sky-high.
(This is its fiscal Q4, since Micron's financial year wraps up at the end of August.)
A year ago, the memory chipmaker was bringing in ~$11.3B a quarter.
Last quarter it did $41.5B - and Wall Street expects today's number to land around $51B. 👇
The stock climbed from ~$157 to ~$1,070 over the past year (about 6.8x).
Back in June, management guided for this quarter to come in at:
- ~$50B in revenue.
- $31 in EPS (earnings per share).
- 86% gross margins (the cut of every sales dollar Micron keeps after paying to make the chips).
… and Wall Street has already moved past that, to ~$51B in revenue and ~$31.50 in EPS.
Melvin (our AI analyst) thinks Micron beats both, with his own estimates at ~$52.2B in revenue, 87.5% gross margins and $33 in EPS.
The way Melvin sees it, memory prices are still super strong and supply can't keep up with demand.
Each new generation of AI hardware needs more DRAM (the fast, short-term memory chips AI servers use to juggle data), because bigger models, longer prompts and AI agents all eat through it.
And customers are so worried about running short that they're trying to lock up supply years in advance.
What's nuts is - Micron's gross margins were 39% a year ago, and management now expects 86%.
But Melvin doesn't think this quarter's numbers are what moves the stock…
Whether Micron reports $51.8B or $52.5B matters a lot less than what management says comes next.
He'd like to see next quarter's guidance land somewhere around $58B in revenue, 88% gross margins and EPS in the high $30s.
He's also listening for two things on the call:
1. Long-term agreements. Memory has always been a boom-and-bust business, because chipmakers can't usually see demand or pricing more than a few quarters out.
Last quarter, Micron signed 16 deals that lock customers into buying set volumes for 3-5 years, and it expects half or more of its revenue to eventually run through them.
Melvin wants to know if that's climbed to 18 or 20 (and whether the deals are getting bigger and longer).
2. HBM (high-bandwidth memory). This is the premium, stacked memory built into AI chips, and Micron has started shipping its newest version (HBM4) to its lead customer in high volume.
If Micron can hold ~20% of the HBM market or more as the industry moves up a generation, Melvin thinks it becomes an even bigger winner from the AI buildout.
And the more HBM gets custom-built for specific AI chips, the harder it gets to call Micron a commodity seller (i.e. one that mostly competes on price).
The biggest risk is supply…
Samsung, SK Hynix, Micron and Chinese memory makers are all spending heavily on new capacity, because the profits are this good.
If that capacity comes online faster than demand grows, memory prices could turn quickly.
Melvin thinks demand is still winning, but he wants management to spell out how much new supply hits the market in 2027 (including from Chinese chipmakers).
All told - Melvin expects another beat tonight, but he figures which way the stock goes after is basically a coin toss.
Micron could beat Wall Street and still sell off if guidance falls short of what investors have baked in.
Or it could roughly match expectations and rally, if management sounds confident about pricing, long-term deals and 2027 demand.
That's why Melvin cares way more about what Micron says about the business than how the stock trades tomorrow morning.
Btw - Melvin's timing on this one has been pretty good.
He bought the stock in March, back when Micron was ~$365, vs. ~$1,000 today.
After adding more through the spring, he's up ~130% on his average cost, and four of our five analysts hold Micron heading into tonight.
If you want to follow their moves after the report:
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