Micron Technology (MU) has just delivered numbers that should have pushed the stock much higher. Q4 revenue came in at $54.2 billion, gross margin at 87%, and free cash flow at $33.2 billion. However, the stock hardly moved. In my view, the market is underestimating the company's ability to sustain its current profitability levels and the potential for future growth, especially in the high-bandwidth memory (HBM) segment.
Summary
- Micron delivered $54.2 billion in revenue and 87% gross margins, while Q4 adjusted free cash flow reached $33.2 billion.
- Q1 gross margin guidance fell to 86.25%, but management expects this quarter to mark FY2027’s profitability floor.
- More than 75% of FY2027 shipments are committed, while 26 strategic agreements extend revenue visibility through 2030.
- HBM’s rising wafer requirements and delayed cleanroom capacity could keep memory supply structurally constrained through 2028.
- At roughly 5-6x forward earnings, sustained $200 FY2028 EPS could support a $1,400-$1,500 valuation range.
Investment Thesis
Micron's recent performance indicates a significant shift in its business dynamics. The company's ability to generate substantial revenue and maintain high gross margins, even in a cyclical industry, points to a more robust and sustainable business model than the market currently prices in. The strong free cash flow generation further bolsters its financial health and capacity for investment and shareholder returns.
Despite a slight dip in Q1 gross margin guidance, management's projection that this quarter will represent the profitability floor for FY2027 is a crucial signal. It suggests that the current levels of profitability are sustainable and likely to improve. The high commitment rate for FY2027 shipments and the long-term revenue visibility through 2030 underscore the company's strong market position and demand for its products.
The structural constraints in memory supply, driven by increasing wafer requirements for HBM and limitations in cleanroom capacity, are expected to persist through 2028. This supply-demand imbalance is a key factor that should support higher memory prices and, consequently, Micron's profitability.
Based on these factors, a forward earnings multiple of 5-6x on a projected FY2028 EPS of $200 could justify a valuation range of $1,400-$1,500 per share. This suggests significant upside potential for the stock from its current levels.
