The market expects Micron's fourth-quarter net profit to surge more than 1,000% year over year and revenue to climb by over 350%, but the stock has already rebounded more than 40% from its July low, suggesting that much of the earnings upside has already been priced in. Rather than focusing on this quarter's results, investors are paying closer attention to management's outlook on hyperscale cloud providers' AI‑related capital spending through 2027 and whether memory price increases can persist—factors that will be pivotal in re‑rating Micron's valuation going forward.
$Micron Technology (MU.US)$The company is set to release its earnings report after the U.S. stock market closes on Wednesday, with market attention now shifting from the results themselves to management's comments on the outlook for AI‑related capital spending among its hyperscale cloud customers next year. Such guidance will be pivotal in determining whether the stock's 40% rally from its July low can sustain.
Against the backdrop of persistently strong demand for AI infrastructure, Micron's stock has rebounded more than 40% from its July 29 low, boosting its market capitalization by roughly $370 billion. Daniel Morgan, senior portfolio manager at Synovus Trust, noted that if management explicitly states on the earnings call that "it does not expect hyperscale customers to significantly cut their capital expenditure budgets next year and anticipates spending will remain steady," it would serve as a powerful catalyst for the stock.
However, despite recent strong fundamentals, Micron's stock is trading at a forward P/E ratio of around 7x—well below its two-year average of roughly 10x and significantly lagging the S&P 500's 19x. Market expectations of a sharp slowdown in growth from fiscal years 2027 to 2028, combined with the memory industry's inherent cyclicality, continue to weigh on valuations.
Earnings are expected to be revised upward, but the magnitude of the revision is narrowing.
Analysts broadly expect Micron to post record quarterly results, though the room for upward revisions has narrowed compared with previous quarters.
According to the average analyst estimates compiled by Bloomberg, Micron's net profit for the fourth quarter of its fiscal year 2026, ending August 31, is expected to reach $36 billion, with revenue of approximately $51.5 billion—up more than 1,000% and 350%, respectively, from the same period a year earlier. Gross margin is forecast at 86%, a substantial increase from 46% in the fourth quarter of fiscal 2025.
The team led by Morgan Stanley analyst Joseph Moore forecasts quarterly revenue of $50.024 billion, up 20.7% quarter over quarter and 342.1% year over year, slightly below the market consensus. Its gross margin is projected at 86.4%, higher than the market consensus of 85.3%; earnings per share are expected to be $31.20, slightly below the market consensus of $31.49.
In a research report on September 28, Morgan Stanley noted that it expects this quarter's earnings to be revised upward, though the magnitude will be smaller than in previous quarters. The team believes that demand for DRAM and NAND remains robust, driving price increases; however, some long-term contracts include price caps, and with this quarter spanning 14 weeks, there may be some technical headwinds.
Next-quarter outlook: Pricing momentum is expected to persist, with revenue likely to exceed expectations.
For the next fiscal quarter ending at the end of November, Morgan Stanley forecasts revenue of $57.56 billion, up 15.1% quarter over quarter and 321.9% year over year, surpassing the market consensus estimate of $56.64 billion. Specifically, DRAM prices are expected to rise 12% quarter over quarter, while NAND prices are forecast to increase 10% quarter over quarter. The gross margin is projected at 88.1%, higher than the market consensus of 85.3%; earnings per share are estimated at $35.57, also exceeding the consensus estimate of $35.07.
Morgan Stanley believes that the current upward trend in DRAM pricing has become a market consensus, and the NAND market is also gradually reaching a consensus following Trendforce's substantial upward revision of its forecasts. The team estimates that, entering the fourth calendar quarter, memory prices have already risen by 15% to 20% from the previous quarter, with some product categories seeing even larger increases.
In terms of demand structure, Morgan Stanley notes that despite some uncertainty in the consumer market, supply has been steadily shifting toward the enterprise segment, and its channel surveys indicate that memory purchased by enterprises is being deployed immediately, limiting the risk of inventory buildup.
The core controversy: the persistence of the cycle, not the peak level of economic activity.
The market's core debate over Micron has shifted from "how strong the upcycle can be" to "how long the upcycle can last," a shift that carries profound implications for the stock's re‑pricing.
According to Bloomberg data, Micron's revenue growth is expected to decelerate sharply from 247% in fiscal year 2026 to 96% in fiscal year 2027, and further narrow to 12% in fiscal year 2028. This steep decline in the growth trajectory lies at the heart of the current valuation discount implied by a forward price-to-earnings ratio of 7x.
Shaon Baqui, a senior equity analyst at Janus Henderson, stated that if the memory industry can sustain gross margins above 80% and maintain steady cash flow, it could ultimately drive a re-rating of stock valuations to higher price-to-earnings multiples.
Morgan Stanley, meanwhile, identified three major concerns investors have about the sustainability of this round of the upcycle: first, the risk of AI server de‑specking; second, the expansion of China's memory supply; and third, the overall increase in supply driven by capital expenditures. In response, the firm addressed each concern one by one, noting that AI compute deployments exhibit low price sensitivity to memory demand, that under the current circumstances, China's supply expansion is unlikely to outpace Western manufacturers, and that its industry research indicates that supply and demand will be even tighter in 2027 and 2028 than they are today. Morgan Stanley maintained its Overweight rating on Micron and a target price of $1,200.
Sustainability of the Stock Price Rebound: Valuation Discounts vs. Catalysts
Micron's stock has rebounded more than 40% from its July low, with year-to-date gains of 273%, making it the fourth-largest gainer in the S&P 500. However, the share price remains about 12% below its June 25 all-time high, indicating that the valuation recovery is far from complete.
Recently, sentiment in the semiconductor sector has experienced significant volatility. On September 14, the Philadelphia Semiconductor Index plunged nearly 6% in a single day, triggered by Anthropic CEO Dario Amodei's call to slow the development of cutting-edge AI models in order to bolster safety measures. Subsequently, the growing popularity of Meta's Muse AI assistant rekindled market confidence in the commercial deployment of consumer‑grade AI, driving the semiconductor index to rebound by more than 13%.
In addition, Morgan Stanley notes that Micron's share buyback progress is also worth watching. Due to restrictions under the CHIPS Act, Micron's cash returns have been constrained in this cycle; the firm expects buyback capacity to expand after December, though it advises investors to maintain a cautious outlook.
Overall, the management's specific comments during this earnings call regarding ultra-large‑scale customers' AI capital expenditures for 2027 will be a key factor in determining whether Micron's stock price can break above its previous high and undergo a revaluation.
Editor/lambor