Will Strong Demand and Pricing Help MU Reach 86% Gross Margin in Q4?

Micron Technology, Inc. MU is entering another potentially strong margin quarter as tight memory supply and robust AI demand continue to support pricing. The company’s ability to maintain elevated selling prices while improving its product mix will be critical to reaching its targeted 86% non-GAAP gross margin in the fourth quarter of fiscal 2026.

Micron’s third-quarter fiscal 2026 results showed how powerful these factors have become. Non-GAAP gross margin reached a record 84.9% in the third quarter, up from 74.9% in the previous quarter and 39% a year earlier. The memory chip maker stated the improvement was driven mainly by higher pricing, along with favorable product mix and strong execution.

Pricing momentum was particularly strong across memory products. DRAM revenues rose 67% sequentially to $31.3 billion, helped by low-single-digit bit shipment growth and a low-60s percentage increase in average selling price (ASP). NAND revenues jumped 99% sequentially to $9.9 billion, driven by a mid-single-digit increase in bit shipments and a mid-80s percentage rise in ASP. These gains helped Micron generate record quarterly revenues of $41.46 billion.

The company’s business segments also demonstrate the strength of the pricing environment. Core Data Center Business Unit revenues more than doubled sequentially to $11.52 billion, while its gross margin expanded to 87% from 74%. Cloud Memory Business Unit revenues rose 78% sequentially to $13.77 billion, with gross margin climbing to 83% from 74%.

Mobile and Client Business Unit’s revenues soared 49.4% sequentially to $11.52 billion, while gross margin increased to 87% from 79%.  Automotive and Embedded Business Unit’s revenues jumped 71.1% sequentially to $4.63 billion, while gross margin improved 11 percentage points to 79%. Increased bit shipments and higher pricing mainly drove each segment’s sequential revenue growth.

Micron had previously guided an approximately 86% gross margin for the fourth quarter, alongside revenues of $50 billion, plus or minus $1 billion. With AI-related demand keeping memory markets tight, sustained pricing strength and favorable mix could help Micron reach or potentially exceed this margin target.

How Do Micron’s Rivals Compare on Margin Strength?

Micron’s major rivals – SK Hynix SKHY and Sandisk Corporation SNDK – are also witnessing strong revenue growth and margin expansion amid rising demand for AI memory and data storage solutions.

SK Hynix is setting a very high bar in the AI memory space. In the second quarter of 2026, the company’s revenues surged 51% sequentially to 79.32 trillion won, while operating profit jumped 61% to 60.54 trillion won. Its operating margin expanded 400 basis points sequentially to 76% in the second quarter, supported by strong HBM demand and higher-value memory products.

Sandisk is also benefiting from tight NAND supply and strong AI data-center demand. In the fourth quarter of fiscal 2026, the company’s revenues climbed 51% sequentially to $8.97 billion, while non-GAAP gross margin expanded to 84.6% from 78.4% in the previous quarter. Sandisk’s first-quarter fiscal 2027 outlook called for a non-GAAP gross margin of 83-85%, suggesting that strong NAND pricing could keep profitability elevated.

For Micron, the key advantage is its exposure to both HBM and broader DRAM demand. If AI spending keeps memory supply tight, strong pricing and favorable product mix could support Micron's push toward an 86% gross margin. At the same time, SK Hynix and Sandisk demonstrate how powerful current memory pricing can be.

Micron’s Price Performance, Valuation and Estimates

Shares of Micron have surged around 227.7% year to date compared with the Zacks Computer and Technology sector’s return of 15.4%.

Micron Technology YTD Price Return Performance

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From a valuation standpoint, MU trades at a forward price-to-earnings ratio of 5.95, significantly lower than the sector’s average of 20.82.

Micron Technology 12-Month Forward P/E Ratio

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The Zacks Consensus Estimate for Micron’s fiscal 2026 and 2027 earnings implies a year-over-year increase of 791% and 113.7%, respectively. Bottom-line estimates for fiscal 2026 and 2027 have been revised upward over the past 60 days.

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Micron currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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