Micron Just Blew the Doors Off the AI Memory Trade — Massive Beats, Locked-In Pricing, and Margins Going Parabolic

Micron delivered a blowout fiscal Q1 2026 report that forcefully reset expectations for the memory cycle, with results and guidance that underscore just how powerful the AI-driven demand environment has become. The company didn’t just beat analyst forecasts — it obliterated them — and followed up with Q2 guidance that implies an acceleration in revenue, margins, and free cash flow that few on the Street were modeling heading into the print. Shares jumped roughly 7% in after-hours trading, a move that now puts pressure on the stock to hold gains as broader AI sentiment continues to fray at the edges.

Starting with the headline numbers , Micron reported adjusted Q1 EPS of $4.78, well above consensus expectations of roughly $3.95. Revenue came in at $13.64 billion, topping estimates near $11.9 billion. Just as important as the beat itself was the quality of the beat: adjusted gross margin surged to 56.8%, far above what analysts were modeling, and a clear signal that pricing power and product mix are swinging decisively in Micron’s favor.

The real shock, however, came from guidance. For Q2, Micron forecast revenue of $18.3–$19.1 billion versus Street expectations near $14.2 billion. Adjusted EPS is expected to land between $8.22 and $8.62, nearly double what analysts had penciled in. Gross margin guidance of 67%–69% implies a step-function improvement in profitability, reflecting not only pricing but also scale benefits and cost efficiencies as high-value products dominate the mix.

Gross margin expansion is central to the Micron story right now. Management made it clear that DRAM pricing strength — combined with tight industry supply — is the primary driver. DRAM revenue rose sharply, with prices increasing at a low-double-digit percentage rate sequentially. Importantly, this is not isolated to one niche product. Tight supply conditions are benefiting the entire DRAM portfolio, including traditional server, PC, mobile, automotive, and embedded markets. Micron emphasized that disciplined industry supply, extended node transitions, and rising costs for new wafer capacity are likely to keep DRAM supply constrained well into 2026.

Crucially for investors, Micron has already locked in much of this pricing power. The company disclosed that pricing agreements are in place with almost all customers for the vast majority of its HBM3E supply for calendar 2026. Management also said it expects to sell out the remainder of its 2026 HBM supply in the coming months. That level of forward visibility significantly reduces downside risk to margins and underpins confidence in sustained profitability rather than a fleeting cyclical spike.

Free cash flow is another pillar of this earnings story. Micron generated $803 million of free cash flow in Q1, even while stepping up capital spending. For fiscal 2025, free cash flow totaled $3.7 billion, about 10% of revenue. Management guided to materially higher free cash flow in fiscal 2026, driven by expanding margins, higher volumes, and disciplined operating expenses. In a sector often criticized for capital intensity, Micron’s ability to generate meaningful cash while investing for growth stands out.

On capital expenditures, Micron spent $13.8 billion in fiscal 2025 and expects fiscal 2026 capex to increase. The bulk of the incremental spend will go toward DRAM front-end equipment, fab construction, and HBM-related investments. Management stressed that supply growth will be driven primarily by node migration to 1γ DRAM rather than aggressive wafer expansion, reinforcing the message of supply discipline. Near-term quarterly capex is expected to run around $4.5 billion as a baseline.

HBM and AI demand remain the marquee growth drivers. Combined revenue from HBM, high-capacity DIMMs, and LP server DRAM reached $10 billion in fiscal 2025, more than five times higher than the prior year. In Q1 alone, HBM revenue approached $2 billion, implying an annualized run rate near $8 billion. Micron reiterated that its HBM market share is on track to align with its overall DRAM share by calendar Q3. Looking ahead, next-generation HBM4 and HBM4E products are expected to deliver even higher margins, particularly customized versions developed in close collaboration with customers.

AI demand is also reshaping storage. Data center NAND is benefiting from AI inference workloads, vector databases, and high-capacity SSD requirements. Management pointed to improving NAND market conditions and expects further tightening in 2026, supported by HDD supply constraints and rising enterprise demand.

Outside the data center, PC and mobile demand are quietly improving. For PCs, Micron now expects mid-single-digit unit growth in calendar 2025, up from prior low-single-digit expectations, driven by Windows 10 end-of-life and the adoption of AI-enabled PCs. Mobile demand remains more subdued, but increasing DRAM content per device — particularly in flagship smartphones — continues to support bit growth and pricing.

Stepping back, Micron’s results reinforce the idea that memory is not just participating in the AI cycle — it is foundational to it. The company’s ability to translate AI-driven demand into sustained pricing power, expanding margins, and rising free cash flow is reshaping investor perceptions of the memory business. With shares sharply higher after hours, the next test will be whether Micron can hold these gains. In a market increasingly skeptical of anything labeled “AI,” Micron’s execution, contracted pricing, and cash generation may be exactly the proof point investors are looking for.