Can AI Memory Demand Sustain Micron's Margin Expansion Ahead?

Micron Technology, Inc. MU has been witnessing robust margin expansion over the past few quarters. In the last reported financial results for the first quarter of fiscal 2026, the company reported a non-GAAP gross margin of 56.8%, up from the year-ago quarter’s 39.5% and the previous quarter’s 45.7%.

Micron Technology’s guidance for the second quarter depicts further scope of gross margin expansion. For the second quarter, it projects a non-GAAP gross margin of 68% (+/-100 basis points), reflecting a strong improvement from the year-ago quarter’s 37.9%. The company is benefiting from the rising artificial intelligence (AI) infrastructure spending, which is driving demand for its memory chips and boosting margins.

AI servers need far more memory than traditional systems. They require high-capacity DRAM and fast storage to process complex models efficiently. This raises average selling prices because customers prioritize performance over cost. When pricing improves, margins typically rise, especially for suppliers offering advanced products. Micron has been focusing on premium memory solutions such as high-bandwidth memory and advanced nodes, which carry better profitability than standard chips.

Industry supply trends also support margins. Memory manufacturers have limited new capacity growth after past downturns, which has kept supply relatively tight. When demand rises faster than supply, pricing improves, and higher prices typically translate into stronger gross margins for Micron Technology.

AI adoption across cloud, enterprise, and edge computing is still growing. As long as this trend continues and supply stays disciplined, AI-driven memory demand has the potential to sustain Micron Technology’s margin expansion in the near term.

Micron’s Competitors in the Memory Chip Race

Although there are no U.S. stock exchange-listed direct competitors for MU in the memory chip space, Intel Corporation INTC and Broadcom Inc. AVGO play key roles in the HBM supply chain and AI hardware ecosystem.

Intel is expanding its AI memory chip portfolio by integrating HBM into its high-performance accelerators. Intel's flagship AI accelerator, the Gaudi 3, features 128GB of HBM2e memory to provide high memory bandwidth for large-scale AI training and inference workloads.

Broadcom is expanding its AI chip business by developing high-performance custom AI accelerators and integrated advanced networking solutions that enable hyperscalers to utilize vast amounts of HBM effectively. Broadcom is co-designing and producing proprietary custom AI chips for companies like OpenAI, Google, Meta and ByteDance.

Micron’s Price Performance, Valuation and Estimates

Shares of Micron have surged around 285.5% over the past year compared with the Zacks Computer – Integrated Systems industry’s gain of 88.5%.

Micron One-Year Price Return Performance

From a valuation standpoint, MU trades at a forward price-to-earnings ratio of 10.40, significantly lower than the industry’s average of 16.65.

Micron 12-Month Forward P/E Ratio

The Zacks Consensus Estimate for Micron Technology’s fiscal 2026 and 2027 earnings implies a year-over-year increase of 307.5% and 36.8%, respectively. Bottom-line estimates for fiscal 2026 and 2027 have been revised upward in the past seven days.

Micron Technology currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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