Micron sees record Q3 cash flow on unrelenting AI demand

Micron Technology said its financial outlook has strengthened since its last earnings call, signaling its expectation to achieve “substantial record free cash flow” again in the third fiscal quarter.

The improved forecast, disclosed in a May 20 corporate update, adds to a string of record-setting results for the Boise, Idaho-based company. In its fiscal second quarter ended February 26, Micron reported record revenue of $23.9 billion, a 196% year-over-year increase, with earnings per share jumping 162% to $12.07. For its upcoming third quarter, management’s guidance points to revenue of $33.5 billion and EPS of $18.90, increases of 260% and more than 10-fold, respectively.

The performance shows how the explosive growth in artificial intelligence is creating unprecedented demand for the specialized memory and storage chips that power AI data centers. This positions Micron, one of the few key suppliers, on a potential path to join the market’s most valuable companies.

Record Results Driven by Insatiable AI Demand

While GPU makers like Nvidia capture the headlines, they rely on Micron’s dynamic random-access memory (DRAM), NAND flash, and high-bandwidth memory (HBM) to function. As demand for AI processing soars, so does demand for these crucial memory components, leading to tight supply and higher prices. This dynamic was reflected in Micron’s expanding profitability, with its gross margin nearly doubling to 74.4% in the second quarter from 36.8% a year prior. The company’s operating margin more than tripled to 67.6% over the same period. Management expects gross margins to expand further to 81% in the third quarter. To meet the surging demand, Micron is expanding its manufacturing capacity with new fabrication facilities planned for Singapore, Japan, and the U.S. over the next several years.

A Sector-Wide Boom

Micron is not alone in benefiting from the AI infrastructure build-out. The trend is lifting the entire semiconductor equipment and services ecosystem. Applied Materials (AMAT), a key supplier to chipmakers, also recently reported a record quarter, with revenues of $7.91 billion, up 11.4% year over year. Management at Applied Materials directly tied the performance to the “rapid global build-out of AI computing infrastructure” and noted it was receiving rolling eight-quarter forecasts from its largest customers, including Micron, to support long-term capacity planning. This sector-wide strength confirms that the demand signals Micron is seeing are part of a durable, widespread technology shift.

The Path to a $3 Trillion Valuation

With a current market capitalization of $784 billion, Micron’s growth trajectory has it on a path toward the elite club of companies valued at over $1 trillion and even $3 trillion. Based on Wall Street’s expectation for Micron to generate $109.7 billion in revenue in 2026, the stock has a forward price-to-sales ratio of about 7. To justify a $3 trillion market cap at that same multiple, the company would need to generate roughly $420 billion in annual revenue. Analysts are forecasting 41% annual growth for the next five years, a rate that would put a $3 trillion valuation within reach by 2030. Despite its triple-digit revenue growth, the stock trades at just 12 times forward earnings, suggesting a compelling valuation for investors who believe in the long-term AI demand story.

This article is for informational purposes only and does not constitute investment advice.