Micron (MU)

Memory chips maker Micron (NYSE:MU) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 46% year on year to $11.32 billion. On the other hand, next quarter’s revenue guidance of $2 billion was less impressive, coming in 83.3% below analysts’ estimates. Its non-GAAP profit of $3.03 per share was 5.9% 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.

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Luckily, Micron’s sales grew at a solid 11.8% compounded annual growth rate over the last five years. Its growth beat the average semiconductor company and shows its offerings resonate with customers, a helpful starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Micron’s annualized revenue growth of 55.1% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, Micron reported magnificent year-on-year revenue growth of 46%, and its $11.32 billion of revenue beat Wall Street’s estimates by 1.8%. Beyond the beat, this marks 8 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 77% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 35.4% 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 121, which is 26 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.

Gross profit margin is a key metric to track because it shows how much money a semiconductor company gets to keep after paying for its raw materials, manufacturing, and other input costs.

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 32.8% gross margin over the last two years. Said differently, Micron had to pay a chunky $67.22 to its suppliers for every $100 in revenue.

Micron’s gross profit margin came in at 44.7% this quarter, marking a 9.4 percentage point increase from 35.3% in the same quarter last year. Micron’s full-year margin has also been trending up over the past 12 months, increasing by 17.4 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).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Micron has done a decent job managing its cost base over the last two years. The company has produced an average operating margin of 17.7%, higher than the broader semiconductor sector.

Analyzing the trend in its profitability, Micron’s operating margin rose by 3.5 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q3, Micron generated an operating margin profit margin of 32.3%, up 12.7 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 24% compounded annual growth rate over the last five years, higher than its 11.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Micron’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Micron’s operating margin expanded by 3.5 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Micron reported adjusted EPS of $3.03, up from $1.18 in the same quarter last year. This print beat analysts’ estimates by 5.9%. Over the next 12 months, Wall Street expects Micron’s full-year EPS of $8.29 to grow 61.1%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Micron has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4%, lousy for a semiconductor business.

Micron’s free cash flow clocked in at $803 million in Q3, equivalent to a 7.1% margin. This result was good as its margin was 3.4 percentage points higher than in the same quarter last year. Its cash profitability was also above its two-year level, and we hope the company can build on this 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).

Although Micron has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8%, somewhat low compared to the best semiconductor companies that consistently pump out 35%+.

Micron reported $10.31 billion of cash and $14.58 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 $19.2 billion of EBITDA over the last 12 months, we view Micron’s 0.2× net-debt-to-EBITDA ratio as safe. We also see its $19 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 glad its revenue and adjusted operating income both outperformed Wall Street’s estimates. On the other hand, its revenue guidance for next quarter missed, but this was offset by better-than-expected EPS guidance for the same period. Overall, this print had some key positives. The stock traded up 3.1% to $171.62 immediately following the results.

Updated: December 4, 2025 at 9:14 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Micron, you should also grasp the company’s longer-term business quality and valuation.

Micron is a fine business. 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 free cash flow margins give it little breathing room, its projected EPS for the next year implies the company’s fundamentals will improve. On top of that, its remarkable EPS growth over the last five years shows its profits are trickling down to shareholders.

Micron’s P/E ratio based on the next 12 months is 13.3x. Looking at the semiconductor landscape right now, Micron trades at a pretty interesting price. If you trust the business and its direction, this is an ideal time to buy.

Wall Street analysts have a consensus one-year price target of $224.11 on the company (compared to the current share price of $227.06).