Micron's 87% Gross Margin Guidance Fails to Excite as Peak-Cycle Concerns Mount

What happened

Micron reported blowout fiscal fourth-quarter results with revenue and earnings well above expectations, and guided to an 87% gross margin for the next quarter. Despite these stellar numbers, the stock did not rally, as investors focused on the sustainability of such extraordinary profitability. Barron's argues that the 87% gross margin is a problem because it signals peak pricing power, raising fears of mean reversion as competitors ramp supply and AI-driven demand normalizes. This aligns with our prior assessment that Micron's scarcity-driven earnings remain robust but incremental upside is fading, and the valuation at around $1,076 already discounts continued strength. The market's tepid reaction reinforces our WAIT rating, with the stock near our trim level of $1,200 and no margin of safety at current levels.

Implication

Investors should be cautious: the failure to rally on blowout earnings and a record margin guide suggests the stock has priced in the good news. With valuation at 24x P/E and 65x EV/EBITDA, any downtick in pricing or supply tightness could trigger a sharp correction. We maintain our WAIT stance and would only consider adding on a pullback toward the $900 attractive entry, while closely monitoring DRAM price trends and customer contract dynamics.

Thesis delta

The Barron's article confirms market skepticism about Micron's record gross margin guidance, reinforcing our view that the stock lacks further upside at current valuations. We see no change to our base or bull cases, but the risk of a negative reaction to margin normalization has marginally increased. We maintain our WAIT rating and continue to watch for signs of pricing pressure or supply additions that could break the scarcity narrative.