Micron Q3 Gross Margin Hits 39% on Strong Pricing: More Upside Ahead?

Micron Technology MU posted a strong rebound in profitability in the third quarter of fiscal 2025. The company reported a gross margin of 39%. This represents an increase of 110 basis points from the previous quarter and 250 basis points above the midpoint of its prior guidance. This improvement was mainly driven by better pricing for DRAM and NAND, as well as continued cost discipline and volume growth.

In its latest earnings call, Micron noted that better-than-expected pricing was the key factor behind the margin upside. Strong sequential growth in bit shipments, a favorable product mix, constrained supply of memory chips, such as D4 and LP4, and low inventory levels in the distribution channels also contributed to the gross margin expansion. 

Looking ahead, Micron guided for further margin expansion in the fourth quarter. The company expects gross margins of 42% (+/-100 basis points), indicating an improvement of 300 basis points on a quarter-over-quarter basis.

Constructive demand environment, along with strong demand for DRAM, higher-value DRAM and higher-value NAND products, may help in the margin expansion. Moreover, management added that tighter inventory, particularly on leading-edge and DRAM, may help sustain pricing strength into the fourth quarter, further helping Micron to keep the gross margins up.

For the calendar year 2025, Micron expects industry DRAM bit demand to grow in the high-teens percentage range, while the NAND bit demand is expected to grow in the low double-digit percentage range. While Micron’s margins have rebounded sharply from last year’s lows, the coming quarters will test whether tight supply and strong demand can continue supporting this uptrend.

How Competitors Fare Against Micron

There are no U.S. stock exchange-listed direct competitors for MU in the memory chip space; it competes with Western Digital Corporation WDC and Seagate Technology Holdings plc STX in the data storage market.

Micron competes with Western Digital in the NAND market. Western Digital is a diversified storage company with a broader portfolio that includes both traditional hard disk drives (HDDs) and NAND-based solid-state drives (SSDs).

Seagate is a major force in the HDD market, particularly for high-capacity storage solutions for data centers and cloud infrastructure. Seagate is also developing its presence in the SSD market through portfolio expansion and partnerships.

Micron’s Price Performance, Valuation and Estimates

Shares of MU have gained 42% year to date compared with the Zacks Computer - Integrated Systems industry’s growth of 26.6%.

MU YTD Price Performance

From a valuation standpoint, Micron trades at a forward price-to-sales ratio of 2.91X, lower than the industry’s average of 3.83X.

MU Forward 12-Month P/S Ratio

The Zacks Consensus Estimate for Micron’s fiscal 2025 earnings implies year-over-year growth of 497.69%, while the 2026 earnings estimate implies growth of 57.36%. The earnings estimates for both fiscal 2025 and fiscal 2026 have been revised upward in the past 30 days, respectively. 

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

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