Micron Raised Its Guidance on Surging Memory Prices. Here's What It Means for the Stock.

Micron Technology (NASDAQ: MU) put up more staggering results in its fiscal 2026 third quarter, fueled by the surging demand for its artificial intelligence memory chips.

In the period, which ended May 28, Micron generated $41.5 billion in revenue, a 74% increase from the previous quarter and a 346% year-over-year increase. Earnings were equally staggering, with net income up 105% from the previous quarter and up 205% year over year to $28.2 billion. These results shattered analysts' consensus estimates.

The chipmaker also issued guidance for its fiscal Q4 that blew analysts' estimates out of the water. The company expects $50 billion in revenue, up 20% from fiscal Q3, and earnings of $30.73 per share, up 25% from the last quarter. Analysts were expecting $42.5 billion in revenue for the current fiscal quarter.

The driver of all this growth, of course, is the tech sector's insatiable demand for Micron's high bandwidth memory, or HBM chips, which are used in data center servers to store the massive amounts of information required for AI workloads.

Image source: Getty Images.

Micron has not only sold out all of the HBM chips it will be able to manufacture for the rest of 2026, but has also presold its complete production capacity through 2027. And on the fiscal Q3 earnings call, CEO Sanjay Mehrotra said he expects "tight conditions to persist beyond calendar 2027 as a result of AI-driven demand across all segments coupled with structural supply constraints."

Pricing power

The combination of wild demand and constrained supply across the memory sector has provided Micron with significant pricing power. Across its cloud memory, data center, and mobile businesses, it has been able to raise prices significantly.

In cloud memory, revenue was up 78% sequentially, and gross margins jumped by 9 percentage points to 83%. Data center revenue rose 103% sequentially, driven by higher pricing and a favorable product mix. Gross margins soared by 12 percentage points to 87%. And in mobile, revenue climbed 49% from the previous quarter, with gross margins rising 9 percentage points to 87%.

Further, Micron inked what it is calling strategic customer agreements (SCAs) with 16 of its customers. These SCAs will transform its business model, creating contracts with three- and five-year terms, and pricing bands for each client. They are designed to improve cash flow and margins, and increase the company's financial stability.

By the end of the term of those agreements, management believes that at least half of the company's revenue will be locked in under these SCAs.

Micron stock is already up 229% this year, and there are no signs of its business slowing down. The company is benefiting from a large backlog, massive demand for its products, pricing power, and a memory supercycle that is expected to run through at least 2028.

Even after the stock's huge gains, Micron is still a value, thanks to its incredible earnings power. It is trading at just 21 times earnings, 6 times 1-year forward earnings, and it has a minuscule five-year PEG ratio of 0.14. For all these reasons, Micron Technology remains a no-brainer buy right now.

Dave Kovaleski has positions in Micron Technology. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.