Micron data center margin hits 87% as AI memory demand surges

Micron Technology reported data center gross margin of 87% in its fiscal third quarter, as AI-driven memory demand pushed pricing to record levels.

"The results reflect a structural shift in memory demand driven by AI infrastructure buildout," Chief Executive Officer Sanjay Mehrotra said in the earnings release.

Data center revenue more than doubled from the prior quarter to a record $11.5 billion, with the segment now accounting for about 28% of total revenue. Companywide revenue reached about $41.5 billion, up 346% from $9.3 billion a year earlier, while non-GAAP earnings per share hit a record $25.11. Consolidated gross margin expanded 10 percentage points to 84.9%.

The stock fell more than 7% Tuesday despite the record results, as investors weighed whether peak margins are already priced in. Shares trade at less than seven times forward earnings, reflecting skepticism that the memory cycle can sustain its current trajectory.

Data center unit drives the boom

Micron's data center business is now running at an annualized pace above $45 billion, up from roughly $6 billion a year ago. The unit's gross margin expanded about 12 percentage points in a single quarter to 87%, a level that most software companies would envy.

The pricing power stems from tight supply of high-bandwidth memory, the dense chips stacked alongside AI processors. Micron has shipped more than $1 billion of its latest HBM generation, with the entire 2026 supply already sold out under multi-year agreements. Industry demand for DRAM and NAND memory continues to run ahead of supply, and management expects those conditions to persist beyond 2027.

DRAM pricing increased in the low-60% range sequentially in the fiscal third quarter, while NAND prices rose in the mid-80% range. Data center solid-state drive revenue exceeded $5 billion, more than doubling from the prior quarter.

Guidance points to further records

For the fiscal fourth quarter ending in August, Micron guided for revenue of about $50 billion, plus or minus $1 billion, with gross margin near 86% and earnings per share of about $31. The company expects the rate of price increases to slow meaningfully in the period.

Micron ended the quarter with $30.2 billion of cash and investments and a net cash balance of $24.4 billion after reducing debt by $4.4 billion. Capital expenditures for fiscal 2026 are expected to total about $27 billion, with quarterly spending rising in fiscal 2027 as the company expands capacity.

The company has signed 16 strategic customer contracts, with remaining performance obligations of about $100 billion tied to agreements with defined pricing terms. Consumer deposits and related financial obligations totaled $22 billion, including about $18 billion in cash deposits — a sign that buyers are locking in memory supply years in advance.

The guidance raise signals management expects AI demand to sustain its momentum. Investors will watch the fiscal fourth-quarter earnings call in September for updated margin trends and any signs that the pace of price increases is moderating faster than expected.

This article is for informational purposes only and does not constitute investment advice.