· week · by The Reader
MU memo (neutral 55), Sep 5, 2026
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Summary
Micron's fiscal Q3 2026 numbers are the best in the company's history, with revenue of $41.456 billion and an 85 percent gross margin, and the take-or-pay contracts put a floor under the next several years. The reason for neutral rather than bullish is in the same filing: the largest agreements carry a ceiling price that approximates the market price of the second calendar quarter of 2026, so the contracts that protect the downside also cap the upside, and the shares are up 675 percent over twelve months into that cap.
Variant view
The market treats the strategic customer agreements as pure de-risking and prices Micron as a structurally changed business rather than a cycle. The 10-Q supports half of that: floors that management says yield gross margins well above any past peak. The half that gets less attention is the ceiling clause on the largest agreements, pegged to second calendar quarter 2026 pricing. If spot DRAM keeps climbing, a growing share of Micron's book cannot follow it up. That is not a bearish fact, it is a reason the distribution of outcomes from here is narrower than the last twelve months suggest, which argues for holding rather than adding.
Evidence
The fiscal Q3 2026 10-Q, quarter ended May 28, 2026, reports revenue of $41.456 billion against $9.301 billion a year earlier and $23.860 billion in the prior quarter. Gross margin was 85 percent versus 74 percent in Q2 and 38 percent a year earlier. Operating income was $33.318 billion, net income $28.243 billion, diluted EPS $24.67. DRAM average selling prices rose in the low 260 percent range year over year with bit shipments up in the low 20s, so this is a price event, not a volume event.
The same 10-Q describes recently executed strategic customer agreements as take-or-pay with binding volume commitments over multi-year terms. It states that the largest agreements generally have a ceiling price for existing products approximating the market price in the second calendar quarter of 2026, and a floor price through the term. Management writes that margins at floor pricing would still be well above peak quarterly margins in any past cycle. That is an unusually specific claim to put in a filing.
The cash side is real and disclosed. Liquidity section of the Q3 10-Q: cash and marketable investments of $30.13 billion as of May 28, 2026, against $11.94 billion at fiscal year end August 2025. Micron expects to receive $22 billion of cash deposits and related financial commitments for agreements concluded to date, about $18 billion of it in cash deposits. Remaining performance obligations were roughly $5 billion, deliberately understated because it uses minimum volumes and minimum prices only.
The spending commitment is the other half. The filing guides to approximately $27 billion of capital expenditure for fiscal 2026, net of government incentives, plus $2.93 billion of purchase obligations for property, plant and equipment. First DRAM output from the first Boise fab is projected for mid calendar 2027, the second Idaho fab for late calendar 2028, and the New York fab supplies 2030 and beyond. The supply Micron is funding now arrives well after the current price spike.
On governance, the 8-K filed August 26, 2026 reports Manish Bhatia appointed President and Chief Operating Officer and Scott DeBoer appointed President and Chief Technology and Products Officer, with Sumit Sadana moving to Senior Advisor to the CEO. Read as succession structuring rather than distress. Fiscal Q4 results are scheduled for September 30, 2026, which is the next real test of whether the price band is already binding.
Bear case
This is a memory cycle and the filing shows why. Cost of goods sold rose only from $5.793 billion to $6.400 billion year over year while revenue quadrupled, which means essentially the entire earnings base is price. Other current liabilities already carry $3.32 billion for consideration payable to customers including pricing adjustments, up from $1.19 billion. Industry capacity responses to a shortage of this magnitude have historically overshot, and Micron itself is adding fabs into 2028 and 2030 alongside its competitors. Buy-side positioning is crowded, with Coatue, Appaloosa and Atreides all holding size as of the June 30, 2026 filings. A stock at $1,016.59 against a 52 week low of $131.16 has priced a lot of durability.
What would change my mind
Bullish if the fiscal Q4 report on September 30 shows a large share of revenue moving to contracted volumes with floors, and management quantifies contracted revenue beyond the current $5 billion remaining performance obligation. Bearish if consideration payable to customers keeps rising sharply from $3.32 billion, or if bit shipments start growing faster than pricing, which would mark the point where added supply is meeting the contract ceilings.
Market data as of the close on . Prices are end of day, not live.
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