Micron's Q3 performance exceeded expectations across the board, with the acceleration of "de-cyclical" long-term contracts worth hundreds of billions of dollars

Author: SoSoValue Research

Micron released its Q3 fiscal year 2026 results: revenue, profit, gross margin, and guidance for the next quarter all significantly exceeded buy and sell-side expectations, especially the gross margin which greatly surpassed expectations; during the earnings call, management positively addressed market concerns regarding demand strength, Capex restraint, and long-term strategic agreements.

Against the backdrop of a market that had already adjusted for risk ahead of the results, this financial report and conference call addressed the investors' most pressing concerns about demand, supply, capital expenditure, and long-term contracts, driving the stock price to surge by as much as 16% in after-hours trading, indicating a clear recovery in market sentiment.

Q3 Highlights: Comprehensive Outperformance, Especially in Gross Margin

Micron's revenue reached $41.46 billion, a year-on-year increase of +346% (the highest in the company's history), while Bloomberg's consensus expectation was $35.63 billion, and buy-side expectations were $38 billion, significantly exceeding expectations. Adjusted net profit was $28.86 billion, a year-on-year increase of +1223.85%; EPS was $25.10, with consensus expectations at $20.50 and buy-side expectations at $22.40, greatly surpassing expectations.

Non-GAAP gross margin was 84.9%, with consensus expectations at 81.8% and buy-side expectations at 83%, exceeding expectations and meeting the market's core expectation for continued gross margin expansion.

This quarter, all four major business units saw accelerated revenue growth:

• Cloud Memory (CMBU) revenue was $13.8 billion, a year-on-year increase of +307%
• Core Data Center (CDBU) revenue was $11.5 billion, a year-on-year increase of +653%, the fastest growth rate and the core driver
• Mobile and Client (MCBU) revenue was $11.5 billion, a year-on-year increase of +254%
• Automotive and Embedded (AEBU) revenue was $4.6 billion, a year-on-year increase of +311%

AI is pushing storage from traditional cyclical products to strategic resources. The four major businesses of Cloud Memory, Core Data Center, Mobile and Client, and Automotive and Embedded all achieved high growth, indicating that demand diffusion has not remained limited to HBM single products but has extended to traditional DRAM, NAND, and edge devices. Management stated that supply tightness may persist until after 2027, with HBM capacity in 2027 largely covered by customer demand, and demand in 2028 still exceeding supply capacity, which supports the sustainability of high gross margins.

Earnings Call: SCA Strategic Agreements as Core Incremental Information

The conference call revealed that Micron has signed 16 Strategic Customer Agreements (SCA) with data center, consumer electronics, and automotive customers, with contract terms typically lasting 5 years (3 years for automotive customers). The signed agreements cover approximately 20% of DRAM shipments and 33% of NAND shipments, with the company's goal to cover over 50% of total revenue in the future.

The terms of the agreements are highly binding—customers must take delivery of the agreed quantities, and even if they do not take delivery, they must still pay, with prices having upper and lower limits, based on the market price in Q2 2026 as the upper pricing limit; among these, 14 agreements are estimated to generate cumulative revenue of approximately $100 billion based on the minimum contract price for the remaining term, with the actual realization expected to be significantly higher, and the associated guarantee deposits have reached $22 billion ($18 billion in cash plus $4 billion in financial guarantees). Management views the SCA as key evidence of the storage industry's transition from cyclical commodities to strategic resources, which is also the core basis for the market's willingness to reassess Micron's "de-cyclical" valuation.

On the supply side, management indicated that market tightness will continue until after 2027, with high-end HBM capacity already largely covered by existing orders in 2027, and demand in 2028 still far exceeding supply capacity, with the proliferation of AI Agents also driving growth in traditional DRAM demand. More than half of the new capital expenditure will be allocated to greenfield capacity construction rather than equipment procurement, indicating that even with increased investment, supply bottlenecks are unlikely to ease in the medium to short term.

Regarding long-term increments, management specifically mentioned autonomous driving and robotics: the storage usage for L2+ models is about five times that of ordinary models, and humanoid robots use about ten times that of L2+ models, which is expected to initiate a new storage demand cycle lasting several decades, accelerating in the latter half of this decade.

Q4 Guidance: Comprehensive Outperformance

• Revenue guidance is $49.9-50.1 billion, with a median of $50 billion, consensus expectations at $43.09 billion, and buy-side expectations at $46 billion, exceeding expectations.
• EPS guidance is $30-32, with a median of $31, consensus expectations at $25.3, and buy-side expectations at $28.3, exceeding expectations.
• Gross margin guidance is 86%, continuing to improve quarter-on-quarter, with market expectations at 83.5%, exceeding expectations.
• Capital expenditure guidance has been raised to $10 billion, far exceeding the previous market expectation of $8.16 billion, reflecting management's increased confidence in the visibility of medium to long-term demand.

Market Concerns: Liquidity and Reflexivity Risks

Although Micron's results and guidance this quarter almost fully met market expectations, there are several concerns regarding short-term pricing.

First, following the appointment of Powell as the Federal Reserve Chair, discussions about the path of the balance sheet and the pace of tapering have intensified; if the liquidity environment tightens marginally, high-beta assets like AI hardware will be more sensitive to changes in discount rates. Secondly, some incremental funds are currently driven more by trends and themes, with continuous earnings upgrades pushing stock prices up, and rising stock prices reinforcing optimistic expectations and capital inflows, creating a certain reflexivity; if subsequent outperformance slows, volatility may also be amplified. Finally, Micron's Non-GAAP gross margin has risen to 84.9% this quarter, with Q4 guidance further raised to approximately 86%, a level that is extremely rare among hardware companies, and the market will still question its long-term sustainability. The SCA agreements enhance revenue and sales visibility but do not completely eliminate valuation volatility risks; whether the next few quarters can continue to meet or even exceed the significantly revised expectations will be key to validating Micron's "de-cyclical" narrative.