Micron 4Q26 Earnings Update: This Cycle Could Be Different; Maintain BUY

Micron beat on every key line and guided higher, yet the shares barely moved. The debate is no longer whether the memory upcycle is real, but whether its downturn will erase earnings. Take-or-pay agreements, AI storage growth and planned capital returns provide support through the cycle. We reaffirm BUY and raise our target price to USD 1,761, implying 65% upside from the USD 1,066.10 close on 30 September.

Figure 1: Micron’s share price

Micron’s Q4 26 earnings summary

Micron’s Q4 revenue rose 31% sequentially to USD 54.23 billion, up 379% year on year. Non-GAAP diluted EPS was USD 33.42 and gross margin 87.0%, beating estimates of USD 31.61 EPS and USD 51.07 billion revenue. FY26 revenue reached USD 133.19 billion, EPS USD 75.52 and adjusted free cash flow USD 62.31 billion.

The main miss was expenses: non-GAAP operating expenses were USD 2.57 billion versus USD 1.65 billion guidance, reflecting incentive compensation and a USD 300 million community contribution. FY27 operating expenses should rise about USD 2.5 billion, tempering the margin benefit from higher revenue.

Table 1: Micron's Q4 26 earnings summary

Metric	Q4 26	Q3 26	Q4 25	Q/Q	Y/Y	Consensus/Guide	Beat/Miss (Variance)
Revenue	54.23	41.46	11.32	30.80%	379.30%	Consensus USD 51.07–51.49bn; Guide USD 49–51bn	Beat (+5.8%)
Gross Margin	87.00%	84.90%	45.70%	+210 bps	+4,130 bps	Consensus 86.2%; Guide 86%	Beat (+80bps)
Operating Expenses	2.57	1.52	1.21	69.20%	111.50%	Guide USD 1.65bn	Miss (+56%)
Operating Income	44.64	33.68	3.96	32.50%	1028.60%	-	-
Net Income	38.4	28.86	3.47	33.10%	1006.90%	-	-
Diluted EPS	$33.42	$25.11	$3.03	33.10%	1003.00%	Consensus USD 31.61–31.83; Guide USD 30–32	Beat (5.4%)
Source: Bloomberg Finance L.P., iFAST Compilation. Data as of 1 October 2026.

Table 2: Revenue segmentation

Business unit (USD mil)	Q4 26	% of rev	QoQ	YoY
Cloud Memory (CMBU)	16,283	30%	18%	258%
Core Data Center (CDBU)	18,002	33%	56%	1042%
Mobile & Client (MCBU)	13,114	24%	14%	249%
Auto & Embedded (AEBU)	6,824	13%	47%	376%
Total	54,229	100%	31%	379%
Source: Bloomberg Finance L.P., iFAST Compilation. Data as of 1 October 2026.

Micron’s Q4 adjusted gross margin was 87.0%, ahead of 86.2% consensus. Q1 guidance of 86.25% implies a 75bps decline, but management expects it to be the FY27 low. Revenue and EPS guidance also exceeded LSEG estimates, with sequential revenue growth expected every quarter.

Table 3: Micron's Q1 27 guidance and FY27 outlook

Metric	Q1 27 guidance	Management FY27 outlook
Revenue	USD 61.5 bil ± 1.5 bil	Another record year, with sequential revenue growth in every quarter
Gross Margin	86.25%	Q1 the floor for FY27; higher in Q2-Q4 as price increases moderate
Operating Expenses	USD 2.06 bil	Up USD 2.5 bil YoY on higher R&D and incentive compensation
Non-GAAP EPS	USD 38.15 ± USD 1.00	-
Capex	USD 11.5 bil	USD 25 bil in 1H27, higher in 2H27; construction capex growing faster than equipment
Industry DRAM bits	-	Low-20s% growth in CY27 and CY28
Industry NAND bits	-	Mid-20s% growth in CY27 and CY28
Source: Bloomberg Finance L.P., iFAST Compilation. Data as of 1 October 2026.

The results and FY27 outlook show that earnings momentum is continuing, but they do not answer the market’s central question. How resilient will profits be when memory pricing cools? Micron’s 0.4% after-hours gain suggests investors are looking beyond another strong quarter for evidence that the next downturn will be less severe.

SCAs strengthen the case for a higher floor

In our June update, Micron Q326: The Night Is Still Young, we argued that the Strategic Customer Agreements (SCAs) had "structurally raised the earnings floor for the next downcycle", and this quarter's numbers make that case stronger. Signed agreements rose to 26 from 16, RPO to USD 150 billion from USD 100 billion and customer commitments to USD 32 billion from USD 22 billion. They now cover over 35% of revenue through 2030, with some agreements extending into 2031.

All SCAs carry take-or-pay volumes, but pricing protection is partial. About three-quarters of projected SCA revenue, or 26% of total revenue, has defined pricing within floors and ceilings. Another 9% has committed volumes but is repriced periodically; 65% remains exposed to market prices. Micron is still cyclical, but more sales now have volume visibility.

Industry scenarios suggest prices could fall 35-40% from 2028 to 2030 if agreements hold through a downturn, versus 60-70% if customers walk away. If Samsung and SK Hynix adopt similar terms, more supply would be committed in advance, making future downturns depend more on uncontracted consumer demand than data-centre orders.

Table 4: SCAs progression

Metric	Q3 26	Q4 26	Change
No. of SCAs signed	16	26	10
RPO (USD bil)	100	150	50%
Customer financial commitments (USD bil)	22	32	45%
SCAs as % of revenue through 2030	25%	>35%	+10 ppt
Source: Bloomberg Finance L.P., iFAST Compilation. Data as of 1 October 2026.

 

Micron deserves a higher multiple

Memory stocks have historically traded at only 6-8 times peak earnings because investors assume those earnings will disappear in the next downturn. A higher multiple therefore needs three things to be true. 1) Earnings must last longer, 2) fall less when the cycle turns, and 3) be returned to shareholders rather than spent on the next glut.

Earnings should last longer than feared. The market assumes profits collapse once new capacity arrives in 2028 and 2029, but new supply comes slowly. Micron's first Idaho fab only starts output in mid-2027. Its second Idaho fab and the Japan expansion follow in late 2028, and each takes several quarters to ramp. HBM4 also needs about four times as many wafers per bit as standard DRAM, so it absorbs much of the new capacity. With DRAM demand still modelled about 10% above supply in 2028, contracts signed at higher prices could push the earnings peak into 2029.

Earnings should fall less when the cycle turns. Micron's revenue is shifting towards products customers cannot easily switch. On Bloomberg Intelligence's market estimates, its 20-22% HBM share implies about USD 40 billion of HBM revenue by 2028, up from USD 15 billion in 2026. Custom HBM4E ties customers to Micron's designs for several years, and data centre SSDs already bring in nearly USD 10 billion a quarter. Combined with SCA floors on about a quarter of revenue, this makes the next trough much shallower than past ones.

Figure 2: HBM market growing with Micron's share holding steady.

 

Cash should reach shareholders. Micron holds USD 68.3 billion of net cash and generates roughly USD 130 billion of free cash flow a year (Q4 annualised run-rate), and it can scale up buybacks from 9 December. Cash returned at the peak cannot be lost in the downturn, and a shrinking share count supports earnings per share as profits level off.

If all three hold, Micron deserves a premium to memory's historical 6-8 times peak earnings. We therefore value the shares at 10.5 times FY28 earnings, below the wider semiconductor sector but above where memory stocks have traded in past cycles.

Downside risk

Supply is the risk that has grown since June. Last quarter we argued that capacity additions would not change the supply-demand balance before CY28. That still holds, but the build-out is now bigger. Micron's FY27 capex has risen to more than USD 50 billion from the mid-USD 40 billion range guided in June. If new fabs ramp faster than planned, open-market prices could start falling in 2H28. About 65% of Micron's revenue is still exposed to those prices.

Customer concentration remains, but it is now spread more widely. In June, the 16 SCAs included four "very large" and three medium customers. Micron now has 26 agreements and USD 32 billion of commitments, but the largest still come from hyperscalers. None of these contracts has been tested in a downturn. The current rate hike cycle raises the cost of borrowing and will test how firmly hyperscalers stick to their capex plans. If AI spending weakens, customers could try to renegotiate or walk away and pay the penalty, which would weaken the earnings floor behind our higher multiple.

BUY, TP USD 1,761 with 65% upside potential

Micron's earnings power is no longer in question. The open question is how long it lasts. We believe the market is underestimating that durability. New capacity will take time to ease the shortage, and HBM and data centre SSDs are making earnings less dependent on commodity pricing. Contracted floors on about a quarter of revenue should also make the next downturn shallower than past ones.

We reaffirm our BUY recommendation. Applying 10.5 times to FY28E EPS of USD 167.73, we derive a target price of USD 1,761, implying 65% upside from USD 1,065.11.

	FY25A	FY26A	FY27E	FY28E
EPS	8.29	73.16	149.90	167.73
YoY		782.5%	104.9%	11.9%
Implied PE	128.5	14.6	7.1	6.4
Current Price				1065.11
Upside Potential (10.5x fair P/E)				65%
Target Price				1761
Source: Bloomberg Finance L.P., iFAST Compilation. Data as of 1 October 2026.