Micron (MU)

Memory chips maker Micron (NYSE:MU) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 36.6% year on year to $9.30 billion. On top of that, next quarter’s revenue guidance ($10.7 billion at the midpoint) was surprisingly good and 7.2% above what analysts were expecting. Its non-GAAP profit of $1.91 per share was 18.9% above analysts’ consensus estimates.

Company Overview

Founded in the basement of a Boise, Idaho dental office in 1978, Micron (NYSE:MU) is a leading provider of memory chips used in thousands of devices across mobile, data centers, industrial, consumer, and automotive markets.

The global memory chip market has become concentrated due to the highly commoditized nature of these semiconductors. Despite the market consolidation, DRAM and NAND are subject to wide pricing swings as supply and demand ebbs and flows. This plays itself out in the business models of memory producers, where the large, fixed cost bases required to produce memory chips in volume can become very profitable during times of rising prices due to high demand and tight supply but also can result in periods of low profitability when more supply is brought online or demand drops. Read More. There are two main types of memory chips: dynamic random access memory (DRAM) and Flash memory (NAND). In any electronic device where a processor or a graphics chip is conducting a task using data, it needs to read the data from where it is stored, known as memory. Smartphones, PCs, and data centers account for more than two thirds of memory demand. DRAM is “volatile” memory, it is a semiconductor that requires an electric charge to retain data – it is the type of memory commonly used in PCs. The advantages of DRAM are the speed at which a CPU/GPU can access the data and its long useful life. Unfortunately, “volatile” means it only can hold data temporarily when it is powered. By comparison, flash memory or NAND is “non-volatile” memory, which means that it saves data when power is removed, making it commonly used in almost every mobile device, along with USB flash drives. Its smaller form factor and greater storage capacity has made NAND-powered solid state drives (SSDs) the long term replacement for the original computing storage device, the hard disk drive.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, Micron’s 10.8% annualized revenue growth over the last five years was solid. Its growth beat the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. Micron’s annualized revenue growth of 36.4% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, Micron reported wonderful year-on-year revenue growth of 36.6%, and its $9.30 billion of revenue exceeded Wall Street’s estimates by 4.9%. Beyond the beat, this marks 7 straight quarters of growth, showing that the current upcycle has had a good run - a typical upcycle usually lasts 8-10 quarters. Company management is currently guiding for a 38.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 28.4% over the next 12 months, a deceleration versus the last two years. Still, this projection is eye-popping given its scale and suggests the market is forecasting success for its products and services.

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Micron’s DIO came in at 137, which is 5 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.

In the semiconductor industry, a company’s gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Micron’s gross margin is one of the worst in the semiconductor industry, signaling it operates in a competitive market and lacks pricing power. As you can see below, it averaged a 27.2% gross margin over the last two years. That means Micron paid its suppliers a lot of money ($72.82 for every $100 in revenue) to run its business.

Micron produced a 37.7% gross profit margin in Q2, up 10.8 percentage points year on year. Micron’s full-year margin has also been trending up over the past 12 months, increasing by 25.7 percentage points. If this move continues, it could suggest a less competitive environment where the company has better pricing power and leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Micron was profitable over the last two years but held back by its large cost base. Its average operating margin of 10.8% was weak for a semiconductor business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, Micron’s operating margin rose by 5 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q2, Micron generated an operating margin profit margin of 23.3%, up 12.8 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Micron’s EPS grew at a remarkable 22.8% compounded annual growth rate over the last five years, higher than its 10.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Micron’s earnings can give us a better understanding of its performance. As we mentioned earlier, Micron’s operating margin expanded by 5 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q2, Micron reported EPS at $1.91, up from $0.62 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Micron broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.

Taking a step back, an encouraging sign is that Micron’s margin expanded by 3.4 percentage points over the last five years. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

Micron’s free cash flow clocked in at $1.67 billion in Q2, equivalent to a 18% margin. This result was good as its margin was 12.2 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Micron historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.3%, somewhat low compared to the best semiconductor companies that consistently pump out 35%+.

Micron reported $10.81 billion of cash and $15.54 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $16.83 billion of EBITDA over the last 12 months, we view Micron’s 0.3× net-debt-to-EBITDA ratio as safe. We also see its $8 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by Micron’s strong improvement in inventory levels. We were also excited it beat analysts' estimates across all fundamental metrics for both this quarter and next quarter's guidance. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 3.5% to $131.92 immediately following the results.

Updated: July 8, 2025 at 10:14 PM EDT

When considering an investment in Micron, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

There are some positives when it comes to Micron’s fundamentals. First off, its revenue growth was solid over the last five years and is expected to accelerate over the next 12 months. And while its low gross margins indicate some combination of pricing pressures or rising production costs, its remarkable EPS growth over the last five years shows its profits are trickling down to shareholders. On top of that, its expanding operating margin shows the business has become more efficient.

Micron’s P/E ratio based on the next 12 months is 12.4x. When scanning the semiconductor space, Micron trades at a fair valuation. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $147.53 on the company (compared to the current share price of $124.85), implying they see 18.2% upside in buying Micron in the short term.