Micron Technology, Inc. Q2 FY2026 earnings call

AI Market Positioning and Demand Trends

• Micron is a core enabler and major beneficiary of the AI revolution, as compute architectures become increasingly memory-intensive, and memory is now a defining strategic asset in the AI era.
• In calendar 2026, DRAM and NAND data center bit total addressable market (TAM) will exceed 50% of the global industry TAM for the first time, driven by strong AI and traditional server demand, both of which are currently constrained by limited memory supply.
• AI is also driving increased memory content in PCs, smartphones and automotive electronics: new on-device AI PCs recommend at least 32GB of memory (double the legacy average), 80% of flagship smartphones now ship with 12GB+ of DRAM (up from <20% a year prior), and Level 4 autonomous vehicles require over 300GB of DRAM vs ~16GB for current L2 ADAS systems.
• Robotics is expected to become a major 20-year growth vector, with humanoid AI robots requiring memory capacity comparable to high-end autonomous vehicles, creating long-term demand upside.

Technology and Product Milestones

• The 1-gamma DRAM node is ramping faster than all prior nodes, and is on track to become the highest-volume node in Micron's history, making up a majority of DRAM bit mix by mid-2026.
• HBM4 volume shipments for NVIDIA Vera Rubin began in Q1 2026, with mature yields expected faster than the prior HBM3e generation; 48GB HBM4 16i has been sampled, and HBM4e (built on 1-gamma) is on track for volume ramping in 2027.
• G9 NAND is on track to make up a majority of NAND bit output by mid-2026, and Micron is now in high-volume production of G9-based PCIe Gen 6 data center SSDs; data center NAND revenue more than doubled sequentially in Q2 to a new record, with data center SSD market share growing for 4 consecutive years.
• Micron has sampled the industry's first 256GB LPCAMM2 for data centers and first automotive-grade 1-gamma LPDDR5, and launched the first G9-based Gen 5 QLC client SSD.

Strategic Agreements

• Micron is moving to multi-year Strategic Customer Agreements (SCAs) replacing shorter-term LTAs, which provide both Micron and customers with greater demand/supply visibility and business stability. The first 5-year SCA has been signed, with discussions ongoing with multiple customers across multiple market segments.

Manufacturing Expansion

• Micron completed the early acquisition of the Tongluo fab site from Powerchip Semiconductor, with first shipments from the existing fab expected in fiscal 2028, and construction of a second cleanroom set to begin by the end of fiscal 2026.
• Other expansion projects are progressing ahead of schedule: ground preparation is complete for the second Idaho fab, groundbreaking has occurred for the first New York fab, site preparation is ongoing for the Hiroshima (Japan) cleanroom expansion, groundbreaking has started for a new NAND fab in Singapore, and commercial shipments have commenced from the new India assembly and test facility.

Total fiscal Q2 2026 revenue was a record $23.9 billion, up 75% sequentially and 196% year-over-year. By product type:

• DRAM: Record $18.8 billion revenue, up 207% year-over-year, 79% of total revenue; 74% sequential increase, with mid-single digit bit shipment growth and mid-60% price increases. The consolidated gross margin was 75%, up 18 percentage points sequentially, a new company record.
• NAND: Record $5 billion revenue, up 169% year-over-year, 21% of total revenue; 82% sequential increase, with low single digit bit shipment growth and high-70% price increases.

By business unit:

• Cloud Memory Business Unit (CMBU): Record $7.7 billion revenue, 32% of total revenue; 47% sequential growth, 74% gross margin (up 9 percentage points sequentially).
• Core Data Center Business Unit (CDBU): Record $5.7 billion revenue, 24% of total revenue; 74% gross margin (up 23 percentage points sequentially).
• Mobile and Client Business Unit (MCBU): Record $7.7 billion revenue, 32% of total revenue; 81% sequential growth, 79% gross margin (up 25 percentage points sequentially).
• Automotive and Embedded Business Unit (AEBU): Record $2.7 billion revenue, 11% of total revenue; 57% sequential growth, 68% gross margin (up 23 percentage points sequentially).

Other key financial metrics: Operating income was $16.5 billion (69% operating margin, up 22 percentage points sequentially); non-GAAP diluted EPS was $12.20; free cash flow was a quarterly record $6.9 billion; quarter-end net cash position was $6.5 billion, the highest in company history.

• Fiscal Q3 2026 revenue is guided to a record $33.5 billion ±$750 million, which exceeds the full-year revenue of every Micron fiscal year through 2024. Gross margin is expected to reach ~81%, and non-GAAP diluted EPS is expected to be $19.15 ±$0.40.
• Fiscal 2026 capital expenditure is now projected to be above $25 billion, upward from prior guidance, driven primarily by cleanroom construction costs (led by the Tongluo acquisition and U.S. fab projects). Fiscal 2027 capital expenditure is expected to increase meaningfully by over $10 billion year-over-year to support high-volume manufacturing expansion, with construction spend growth outpacing equipment spend growth in both 2026 and 2027.
• Calendar 2026 industry DRAM bit shipment growth is projected to be in the low 20% range, a slight upward revision from prior outlooks; industry NAND bit shipment growth is projected to be ~20%. Micron's own DRAM and NAND supply is expected to grow in line with the industry.
• Fiscal 2027 operating expenditure will increase as Micron ramps up R&D investment to address long-term AI memory opportunities. The 2026 effective tax rate is expected to remain ~15.1%.
• Supply-demand conditions for both DRAM and NAND are expected to remain tight beyond calendar 2026.

• Persistent industry-wide supply constraints across DRAM and NAND limit Micron's ability to meet full customer demand across all end markets, with key customers currently only receiving 50% to 67% of their requested volume.
• Structural supply constraints, including cleanroom capacity limitations, long construction lead times for new fabs, declining bit growth per wafer from node migrations, and higher HBM die take per wafer, will limit supply growth for the foreseeable future.
• Higher memory prices may lead to moderate demand destruction in price-sensitive consumer end markets (PCs and smartphones).
• Trade and geopolitical developments could impact results, and these potential impacts are not included in management's current guidance.

Q: What is the sustainability of the current 81% guided gross margin, especially as HBM4 volume ramps? / A: Management does not provide guidance for Q4 2026 gross margin, but notes that tight market conditions are expected to remain beyond 2026. The current high gross margin reflects the multi-year AI investment cycle, which requires more high-performance memory, and structural supply constraints that will persist. Incremental price increases will have a smaller impact on gross margin at current high levels, but underlying conditions support strong margins going forward.

Q: How do SCAs differ from legacy LTAs, and do they include downside protection for gross margins? / A: Unlike traditional one-year LTAs, SCAs are multi-year agreements with binding mutual commitments that give customers supply certainty for planning and provide Micron with more stable demand visibility. The agreements are confidential, so no specific contract terms can be shared. They are designed to provide stability across industry cycles, with robust terms for both parties, and discussions are ongoing with multiple customers across multiple market segments.

Q: How is Micron allocating tight supply across end markets, and is demand destruction occurring in PCs/smartphones? / A: Supply is tight across all end markets, and higher prices may cause limited demand impact in price-sensitive consumer markets, but overall demand remains strong. Micron maintains a strategic focus on diversified end market exposure, though a growing share of supply naturally goes to the fast-growing data center segment, which now makes up over half of industry TAM. AI continues to drive growing memory content across all end markets, and Micron works with customers across all segments to allocate available supply. Current allocation levels remain consistent with prior quarters, where key customers receive 50% to two-thirds of their requested volume.

Q: What is the growth outlook for data center SSDs, and will Micron invest in high bandwidth flash (HBF)? / A: Data center SSDs have strong long-term growth ahead, driven by tight NAND supply and overwhelming demand for NAND in AI use cases like vector databases. Micron is well-positioned with a full portfolio of performance and capacity-optimized G9-based SSDs, and will continue growing this higher-margin part of the business. HBF is still in early stages, with known limitations in write speed, power consumption, and retention; Micron continues to study the technology and customer value proposition but has not committed major R&D resources to it at this time.

Q: Why is the current high gross margin environment different from historical peaks? / A: Unlike prior cyclical peaks, the current environment is driven by durable, secular factors: AI is a transformational driver that increases the value of memory, as more high-performance memory reduces AI token cost and enables larger, more capable AI models, creating a self-reinforcing demand cycle. In addition, structural supply constraints (low inventory, declining bits per wafer for new nodes, higher HBM die take, long lead times for greenfield capacity) will take years to resolve. Both factors support sustained stronger margins over time, which customers are recognizing through entering long-term supply agreements.