The world’s top memory chip maker has made a lot of headlines this week. micron We provide one of the most powerful earnings reports during this artificial intelligence cycle.
Micron exceeded already high expectations, posting sales and profits that beat guidance for next quarter’s gross margin of approximately 80%. Still, stock prices fell.
The market reaction is similar to Nvidia’s earnings results at the end of February, and if a blockbuster doesn’t satisfy traders, what will happen?
In Micron’s case, the debate isn’t whether the demand is real. The question is how long these unusually strong gains will last, and what it means for the rest of the chip space.
“Memory is in very tight supply today, and we can’t easily ramp up supply, and that’s clear from our performance,” Micron CEO Sanjay Mehrotra said Thursday on CNBC’s “Money Movers.” “We see the value of memory reflected in our strong financial performance in the second quarter.”
On a conference call with analysts Wednesday, Mehrotra and his team said major customers are only getting half to two-thirds of the memory they want. They also highlighted the company’s first five-year strategic customer agreement. This is a significant shift from the one-year contracts the industry is accustomed to.
Micron expects free cash flow to more than double from the previous quarter despite a surge in capital spending.
Micron isn’t the only company talking like this.
samsungThe company’s leadership is currently discussing three- to five-year memory contracts as AI demand absorbs supply. Chairman Choi Tae-won SK HynixSK Group, the parent company of SK Group, went further, saying the global memory chip shortage could widen towards the end of the decade.
Taken together, all three memory giants claim this is not a one-time squeeze. There will be a period of several years in which supply has difficulty keeping up with demand.
And analysts are leaning toward that story.
Daiwa has more than doubled Micron’s price target from $350 to $700, and Cantor Fitzgerald has also raised its price target to $700, believing that the memory upcycle will not peak in 2026 and may continue until 2027 or 2028.
Some point to the initial five-year strategic customer agreement as evidence that customers don’t think the shortage will go away anytime soon and are willing to lock in supply and prices.
At the same time, Micron has increased its spending plans for this year to at least $25 billion, hinting at another meaningful step up in 2027.
Samsung raised its forecast for spending on chip production to $73 billion.
This is exactly the kind of spending increase that has some investors worried. The old memory strategy suggests that once a big new factory or cleanroom is built, a group’s decline begins as future supplies begin to catch up.
So even though major memory manufacturers are talking about supply tightness beyond 2026, some in the market are wondering whether we are already approaching peak tightness and peak margin, and whether the size of future “beats” will naturally shrink from here.
