Review|MU FY26Q4: Visibility Extends to 2028, Supply Tighter Than in 2026

Micron expects memory supply-demand conditions in CY27 and CY28 to be tighter than in 2026. Customer orders and AI compute demand continue to rise. Even after accounting for planned cleanroom expansions across the industry, Micron sees no clear timeline for supply and demand to return to balance. Management expects prices to keep rising through FY27, though at a more moderate quarter-over-quarter pace. This is consistent with our prior view: memory prices will continue to rise, with the pace constrained by LTAs and customer affordability.

Micron’s FY27Q1 gross margin guidance was 75 bps below the buy-side expectations shown below, reflecting additional costs such as incentive compensation and new fab startup expenses. Revenue and EPS results and guidance exceeded those expectations, while FY26Q4 gross margin was in line. Based on our adjustment for the additional costs, gross margin guidance was approximately 80 bps above buy-side expectations. We reiterate our view that this memory cycle will sustain a longer plateau, and we look forward to Micron’s planned increase in shareholder returns from December 9, 2026.

SCA

Management emphasized that newly negotiated Strategic Customer Agreements (SCAs) with pricing terms use higher pricing baselines and bands that reflect current shortages. We therefore believe market concerns about LTAs holding back pricing are overstated.

Micron has signed 26 take-or-pay long-term agreements, with RPO of approximately $150b and customer financial commitments of $32b, mostly in cash deposits. SCAs currently cover more than 35% of expected revenue through 2030, with a longer-term target of around 50%. Of the revenue covered by SCAs, 75% has a defined pricing framework, mostly with price bands. Management expects margins even at the price floors to remain significantly above prior cycle peaks. Together with advance purchase orders from non-SCA customers, these agreements commit more than 75% of Micron’s CY27 output. Most customer discussions are now shifting toward CY28 capacity allocation.

HBM

Micron’s FY26Q4 HBM revenue growth outpaced the company-wide average, and the vast majority of CY27 HBM bit supply is already contracted. Management indicated that CY27 contract prices will rise substantially year over year, narrowing the gross margin gap between HBM and conventional DRAM.

Addressing concerns about customers reducing memory specifications, management said these adjustments allow customers to ship more complete server systems amid acute shortages. Demand for high capacity and bandwidth remains intact. HBM’s higher wafer consumption and diminishing gains from process node scaling will continue to constrain effective supply. Industry HBM bit shipment growth is expected to outpace conventional DRAM through CY28.

DRAM/NAND Supply-Demand Forecast

• DRAM: CY2026 industry bit shipment growth is projected in the mid-20% range, with Micron’s supply growth broadly in line. In CY2027–CY2028, industry growth is expected to slow to the low-20% range, with supply constrained in both years. The main constraints remain long construction cycles for new cleanrooms, diminishing gains in output per wafer from process node scaling, and HBM’s high wafer area requirements.
• NAND: CY2026 industry bit shipment growth is projected in the low-20% range, slightly above prior expectations, while Micron’s supply growth is below the industry average. In CY2027–CY2028, industry bit shipment growth is projected in the mid-20% range, with supply remaining short of demand in both years.

CapEx

Micron’s FY26Q4 capital expenditures were $10.8b. FY27Q1 spending is projected at approximately $11.5b and 1H FY27 spending at approximately $25.0b. With 2H spending expected to exceed 1H levels, these projections imply full-year FY27 capital expenditures above $50.0b. These figures are net of anticipated government incentives. Spending on fab shells and cleanroom construction is expected to grow substantially faster than equipment spending in FY27. Micron will adjust equipment installation to demand, while bringing forward some purchases to improve output from existing cleanroom space.

Financial Forecast Update