Micron’s NASDAQ: MU The financial results of Q3 and its strong performance highlight a persistent problem in today’s market: there is a misunderstanding of AI trading. AI is not a niche; it’s not a bubble. It is the evolution of technology, and that evolution is accelerating.
Leading tech giants, businesses, and research labs around the world are racing to use existing infrastructure to unlock the next generation in a virtuous cycle that could play out over years, if not decades.
The impact on Micron is huge, as it is the main source of high-bandwidth memory (HBM) stacks, a component found in many GPUs designed for heavy AI training and other advanced workloads. The important information is that each NVIDIA NASDAQ: NVDA The GPU uses six to 16 HBM stacks, and each stack is six to 12 chips high, making Micron’s product demand grow geometrically relative to the AI GPU submarket.
The takeaway is that HBM markets are sold, with the new offering not expected to have a significant impact on the market until sometime in 2028. Until then, Micron is riding a wave of strong demand and pricing that boosts high growth and a strong outlook for the next six to eight quarters.
Micron, Growing Faster Than NVIDIA, Is Faster
NVIDIA set the gold standard for AI growth, topping out at 265% in Q4 2024, but Micron just raised the bar. The company’s Q3 revenue of $41.46 billion was not only up 345% from a year earlier, but also nearly 1,550 basis points (bps) above MarketBeat’s reported consensus estimate. Strength was seen in all segments, each growing at an average rate of 375%, led by Cloud and Datacenter, which comprised more than 60% of the business. Cloud Memory grew by 300% and Datacenter ty by 650%, Mobile & Client by 250% and Auto & Embedded by 310%.
Margin news was also strong. The increase in revenue fueled growth across the stack, despite higher costs and capital expenditures. Key insights include operating cash flow, which more than doubled sequentially and quadrupled year-over-year (YOY), and adjusted free cash flow, which grew nearly 9X to more than $18 billion. Adjusted earnings per share (EPS), the market-wide benchmark for earnings quality, grew 13X to over $25, about $5 or 2000 bps better than expected.
Guidance is key for this market, as we predict another quarter with similar sequential growth, margin strength, and earnings. The $50 billion revenue forecast was 1600 bps better than expected, compounded by a hotter revenue outlook. Earnings are expected to exceed $31, further strengthening the company’s financial position.
Micron’s War Chest Swells: Debt Falls
Micron’s business success is clearly visible in the balance sheet highlights. The company’s cash balance grew, rising nearly 160% YOY, to a high of $30 billion, including investments and restricted cash. Although debt has also increased, it has done so at a much slower pace, caused by massive debt reduction, leaving equity high. Looking ahead, cash flow is expected to remain strong for at least the next two years, barring any unexpected technological developments, suggesting further cash and equity gains in the near future.
Analyst trends are likely to strengthen as Q3 financial results and Q4 financial guidance are released. As it is, the trends are very strong, including several price increases in the weeks leading up to the earnings release. The consensus of 39 is Buy, with a 90% Buy-side bias on the data, and a target price of $1,103. However, it is not the target value that is important; it’s a habit. The June revision brought the price high to $2,000, representing a 100% increase in the stock price from the previous issue’s closing price.
Looking at Micron on a valuation basis, MU stock remains deeply undervalued, based on a prior-issue earnings perspective. The prospect of a post-issue dividend makes the value deeper, suggesting that this stock could easily rise 200% to 300% in the near term and even more in the long run. Micron’s biggest risk is industry volatility and excessive liquidity, but that’s a problem for the future. Supply and demand metrics, the capacity expansion timeline, and analyst commentary suggest there is little risk of oversupply at this time. The most likely scenario is that the short supply continues until 2028 and possibly longer.
Price action shows the strength of results and direction, indicating that the rise will continue. MU shares gained more than 15% to hit a high after the release, amid rising market sentiment. In this scenario, MU shares will likely continue to rise and may accelerate. Not only is the idea strong, but FOMO can be set in the market, freeing up cash to go.
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