Micron's Q3 Earnings: DRAM Dominance and NAND Headwinds in the AI Era

Micron Technology (NASDAQ: MU) is set to report its fiscal Q3 2025 earnings on June 25, with investors closely watching how its AI-driven DRAM boom offsets ongoing NAND struggles. The semiconductor giant's results will highlight a stark divide between its high-margin HBM (High-Bandwidth Memory) leadership and lingering challenges in the NAND flash market. Here's why this earnings report could redefine Micron's valuation and its role in the $150 billion AI chip market.

DRAM's AI Resurgence: A Game-Changer for Margins

Micron's DRAM segment is the star of its Q3 narrative, fueled by $7 billion in revenue—a 49.2% year-over-year jump—driven by insatiable demand for AI infrastructure. The company's HBM3E modules, used in NVIDIA's H200 GPUs and AMD's Instinct MI350 GPUs, have become critical to exascale computing systems. With 100% of its 2025 HBM3E capacity sold out, Micron is leveraging pricing power in a constrained supply environment.

Margin expansion in DRAM is a key focus. Despite a slight dip in overall gross margins to 36.5% (from 37.9% in Q2), DRAM's sequential pricing gains of 5%—driven by data center demand—signal stabilization after years of oversupply. The upcoming HBM4 (targeted for 2026) promises 2TB/s bandwidth and 20% better power efficiency, positioning Micron to dominate next-gen AI workloads. Analysts project HBM revenue could reach $7–$9 billion annually by 2028, further boosting margins.

NAND's Laggard Performance: A Drag on Earnings

While DRAM shines, NAND remains a liability. Revenue fell 17% sequentially in Q2 due to oversupply and sluggish pricing recovery, with gross margins compressed by weak demand in consumer electronics. Even modest NAND price improvements in early 2025 haven't offset the drag.

The problem? Supply-demand imbalance persists, exacerbated by macroeconomic headwinds and weak smartphone/PC markets. Micron's NAND 232-layer 3D technology aims to improve competitiveness, but analysts warn that NAND's contribution to earnings growth will remain muted until pricing stabilizes—a timeline that may stretch into 2026.

Why Micron Still Deserves a "Buy" Rating

Despite NAND's challenges, Micron's strategic moves and AI tailwinds make it a compelling long-term bet:

1. AI Infrastructure Gold Rush:
2. The $100 billion AI data center market by 2025 (per Gartner) is fueling demand for Micron's HBM. NVIDIA's Blackwell GPUs require up to 288GB of HBM3E, and Micron's yield advantages over competitors like Samsung solidify its dominance.

3. Partnerships matter: Micron's supply agreements with NVIDIA, AMD, and Marvell ensure steady revenue streams.

4. Margin Expansion Potential:

5. While NAND weighs on margins, DRAM's pricing power and HBM's premium pricing provide a clear path to margin recovery. A forward P/E of 17 (vs. Samsung's 22 and SK Hynix's 25) suggests Micron is undervalued relative to peers.

6. Supply Chain Resilience:

7. Micron's $6.1 billion U.S. DRAM plant expansion under the CHIPS Act secures geopolitical advantage, reducing reliance on Asian competitors.

Risks to Consider

• NAND Overhang: Persistent oversupply could delay margin recovery.
• Competitive Threats: Samsung and SK Hynix are ramping HBM production, risking pricing wars.
• Geopolitical Risks: U.S.-China trade tensions could disrupt supply chains.

Investment Thesis: Buy Ahead of Q3 Earnings

Micron's Q3 results are likely to beat consensus estimates ($8.83 billion revenue, $1.59 EPS) on strong HBM sales and DRAM pricing. The stock trades at a 30% discount to its 2028 AI TAM-derived valuation, offering asymmetric upside.

Recommendation:
- Buy: Target price $125–$130 (aligned with analyst consensus) based on HBM's multiyear growth trajectory.
- Hold if: NAND softness or macroeconomic slowdowns threaten AI spending.

In conclusion, Micron's Q3 earnings will underscore its transformation into a pure-play AI memory leader. While NAND's struggles are real, the company's HBM3E/HBM4 dominance and strategic investments position it to capitalize on the $500 billion AI TAM. For investors with a multiyear horizon, this is a buy now, hold forever opportunity.