Micron FQ2 26 – The Price of the Boom

Micron’s finances are improving faster than its spending.

• A fantastic set of results was badly received by the market, which is increasingly nervous about spending commitments, but in Micron’s case, its financial position is improving so quickly that it can easily absorb the increase in capex without having to raise any money.
• FQ2 26 revenues / Adj-EPS were $23.9bn / $12.20, well ahead of forecasts of $20.0bn / $9.19 and there was more to come in the outlook for FQ3 26.
• FQ3 26 revenues / Adj-EPS are expected to be $32.75bn – $34.25bn ($33.0bn) / $18.65 – $19.55 ($19.15) which are also significantly ahead of estimates of $28.24bn / $15.40.
• This is all a result of demand continuing to exceed expectations, which was evident everywhere in the financial statements.
• FQ2 26 gross margin was 74% and is expected to increase to 81% in FQ3 26 which is what is driving the substantial EPS beat and raise.
• Crucially, cash flow is also growing strongly with FQ2 26 cash flow from operations at $20.3bn (up 182% YoY), which even with a $5bn repayment of debt, allowed cash to grow by $4.3bn to $13.9bn.
• Against this backdrop, Micron is increasing its investments to meet the demand that it sees, and it is here that the market is edgy and sent the shares down 4.1% in after-hours trading.
• For fiscal 2026, Micron now sees capex above $25bn (H1 26 run rate is $23.6bn), which will also step up meaningfully in 2027
• Fiscal 2027 capes will increase by more than $10bn to cover construction costs as well as a higher spend on chipmaking equipment.
• This guidance is pretty vague but reading between the lines, I would estimate that this translates into an increase in capex in FY 2027 of $15bn – $20bn.
• This adds up to capex of $40bn – $45bn, which is a very large increase but critically, as long as demand continues to be robust, Micron can afford it.
• For the first half of FY2026, Micron has generated $20.3bn in cash flow from operations, which, given the guidance for Q3 26, could easily top $45bn for the full year.
• Nvidia was keen to point out that demand will exceed its ability to build supply at least the end of calendar 2027 which takes us beyond the end of Micron’s fiscal 2027 time horizon.
• Furthermore, Samsung is starting to flex its muscles in the memory market and push clients to sign long term supply agreements and I expect that Micron will move to do the same.
• Hence, I expect that Micron will exit FY 2026 with $25bn or more on its balance sheet with the prospect of generating more than $50bn in cash flow from operations in fiscal 2027.
• This means that it can invest $40bn – $45bn, and pay a dividend without having to raise any debt, which is exactly what I am hoping it is going to do.
• Memory is the most cyclical part of the semiconductor industry, and while the industry sees unprecedented demand, there are no indications that the fundamental nature of the industry has changed.
• Hence, there will be a downturn, and when it comes, Micron needs to have a rock-solid balance sheet and war chest to ride out the volatility without meaningfully hurting its long-term business.
• Given that Micron is already sold out for 2026 and is likely to start signing deals for 2027 pretty soon, I think that the short-term outlook is very robust.
• Hence, I expect that the company will meet and exceed consensus estimates, meaning that the shares are trading on 9.4x FY2026 PER and even lower for 2027.
• If I didn’t already own Samsung, I would be looking to buy this dip as the cycle’s peak is not yet on the 12–18-month horizon, although I am watching very carefully for signs of it.