Micron targets 86% gross margin as AI memory shortage persists

Micron Technology ↗ 5.12% reported fiscal third-quarter 2026 revenue of $41.46 billion, a 346% increase from the year-ago period, as insatiable demand for AI memory pushed non-GAAP gross margins to a record 84.9%. The company guided fiscal fourth-quarter revenue to approximately $50 billion and projected gross margins in the mid-80s, with results due September 30.theglobeandmail+2

CEO Sanjay Mehrotra told CNBC's "Mad Money" on August 20 that artificial intelligence has fundamentally altered the memory industry's historically volatile boom-and-bust cycle, declaring "today there is no AI without memory". Data-center customers are requesting roughly 50% more supply than Micron can commit to delivering, he said, a gap the company cannot close until new fabs come online.finance.yahoo+1

Sold-Out Capacity and Binding Contracts

Micron's entire 2026 high-bandwidth memory output is fully committed under fixed-price, take-or-pay agreements. The company has signed five-year strategic customer agreements with more than 16 partners carrying $22 billion in commitments, of which $18 billion is upfront cash. At the KeyBanc Technology Leadership Forum on August 10, then-Chief Business Officer Sumit Sadana described the contracts as binding with "no contractual outs" for buyers, with flow pricing set to deliver margins "well above any prior peak in the cycles of the industry".tikr+1

DRAM revenues rose 67% sequentially in the quarter to $31.3 billion on a low-60s percentage increase in average selling prices, while NAND revenues jumped 99% to $9.9 billion on a mid-80s percentage ASP gain.theglobeandmail

Massive Capital Plans and Leadership Changes

Micron is doubling capital expenditures to approximately $26 billion in fiscal 2026, with spending projected above $45 billion in fiscal 2027. The company raised its long-term U.S. investment commitment from $200 billion to $250 billion through 2035 and unveiled a $10 billion Micron Research Labs initiative endorsed by Nvidia ↗ 2.78% CEO Jensen Huang and Apple ↘ 0.52% CEO Tim Cook.investing+1

On August 26, Micron promoted Manish Bhatia to President and COO and named Scott DeBoer President and Chief Technology Officer, while Sadana moved to Senior Advisor. New capacity remains years away: the first Idaho fab expects wafer production in mid-2027, with meaningful supply ramp not anticipated until 2028.tikr+1

Wall Street Divided on Duration

Analysts are split on how long the pricing power lasts. BMO Capital Markets initiated coverage on August 21 with an "Outperform" rating and a $1,300 price target, calling Micron a beneficiary of a "memory supercycle". Citigroup cut its target on August 25 from $1,400 to $1,150, warning of potential DRAM and NAND price softening by 2027. The stock has gained more than 200% year-to-date but remains roughly 27% below its 52-week high set in late June.ad-hoc-news