Micron’s earnings significantly beat expectations, and SCA long-term contract expansion is reshaping the earnings floor

Overview

This report is JPMorgan’s review of Micron Technology’s F3Q26 results and F4Q26 guidance. The report believes that both the results and the guidance significantly exceeded sell-side and buy-side expectations, but the more important change is the substantial expansion of Strategic Customer Agreements (SCA), which is shifting Micron from a more typical cyclical commodity memory supplier toward a supplier with multi-year contract lock-ins and margin floor protection.

Core views

The core views are: first, F3Q26 revenue, gross margin, and EPS all delivered very strong results, with DRAM and NAND price increases remaining the main drivers; second, F4Q26 guidance indicates further sequential improvement in revenue and EPS, and although the pace of price increases will slow, the durability of already achieved pricing levels is more important; third, SCA expansion materially improves revenue visibility and the margin floor; fourth, structural demand in HBM, data center DRAM, and SSDs strengthens medium- to long-term growth visibility; fifth, cash flow and customer deposit accumulation provide a potential catalyst for shareholder returns after December 2026.

Analysis framework

The report analyzes quarterly actual results, company guidance, market consensus expectations, JPMorgan forecast revisions, SCA contract coverage, pricing and gross margin assumptions, cash flow and capex plans, and uses a P/E valuation framework to determine the target price.

Methodology notes

• Valuation methodsP/E Valuation

  10x FY28E EPS

  The target price of $1,540 is based on 10x P/E, the 10-year median P/E multiple, multiplied by approximately $154 of FY28E EPS.

• Earnings reviewBeat-and-raise analysis

  Comparison of actual results with consensus expectations and company guidance

  The report compares F3Q26 actual revenue, gross margin, and EPS with market consensus expectations and JPMorgan forecasts, and assesses the magnitude of the F4Q26 guidance revision relative to consensus expectations.

• Contract qualitySCA revenue floor analysis

  Multi-year customer agreements lock in revenue and margin floors

  The report views the signing of 16 SCAs, their coverage volumes, pricing ranges, customer deposits, and floor-price revenue as key evidence for judging the durability of Micron’s earnings.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• MU.US

  Covered company and core recommended name

  Strengths

  F3Q26 results significantly beat expectations, gross margin reached a high level, SCA expansion enhances revenue and margin visibility, HBM and data center demand are strong, and cash flow plus potential buybacks create catalysts.

  Weaknesses

  The business remains exposed to memory price cycles, supply-demand volatility, rising capex, and changes in end demand.

  Comparison

  Compared with the positioning of traditional cyclical DRAM/NAND suppliers, the report believes SCA makes Micron more similar to a supplier with multi-year contract protection; the peer valuation table shows MU’s P/E is lower than some memory peers.

  Risks

  If DRAM/NAND prices fall rapidly, PC or macro demand weakens, supply expands too quickly, or execution disappoints, revenue and earnings forecasts may be revised down.

• DRAM

  Primary revenue and profit driver

  Strengths

  Accounted for 76% of revenue in F3Q26, revenue rose 67% QoQ, ASP increased sharply, and HBM and data center demand provide structural support.

  Weaknesses

  Still affected by supply-demand balance and price cycles.

  Comparison

  Compared with NAND, DRAM represented a larger share of revenue this quarter and is the main source of the company’s earnings leverage.

  Risks

  Supply-demand imbalance or a rapid price decline would compress revenue and gross margin.

• NAND

  Second-largest business and key focus of SCA coverage

  Strengths

  Accounted for 24% of revenue in F3Q26, revenue rose 99% QoQ, ASP gains were stronger, and SCA covers about 33% of NAND volume.

  Weaknesses

  Historically more volatile in pricing, with higher risk of supply-demand mismatch.

  Comparison

  This quarter, NAND grew faster sequentially than DRAM, but from a smaller revenue base.

  Risks

  Changes in NAND demand assumptions or a disconnect between supply and demand could affect industry growth and company profitability.

Key data

• F3Q26 revenue$41.5BQoQ +74%, YoY +346%, above consensus expectation of $35.6B.
• F3Q26 gross margin84.9%A record high, above the consensus expectation of 81.8%.
• F3Q26 EPS$25.12A record high, above the consensus expectation of $20.49.
• F4Q26 revenue guidanceapproximately $50B to $51BThe midpoint is significantly above the consensus expectation of $43.1B.
• F4Q26 EPS guidanceapproximately $31.00Continues to grow sequentially versus F3Q26.
• Number of signed SCAs16Covers about 20% of DRAM volume and about 33% of NAND volume, with terms roughly spanning CY26-CY30.
• Cumulative SCA floor-price revenueapproximately $100BFrom 14 SCAs with defined pricing ranges, calculated at floor prices.
• Customer cash deposits and related commitments$22BOf which $18B is unrestricted cash, with another approximately $10B expected in F4Q26.
• FY26 revenue/EPS forecast$130B / $73.69Raised from the previous $109.7B / $58.84.
• FY27 adjusted EPS forecast$153.65The table shows FY27E Adj. EPS of $153.65.
• Target price$1,540.00Raised from the previous Dec-26 target price of $550 to a Dec-27 target price of $1,540.

Impact & implications

If the report’s assumptions play out, Micron’s investment thesis will no longer rely solely on a short-cycle rise in memory prices, but will instead be supported jointly by SCA contract lock-ins, HBM and data center demand, improving cash flow, and future buybacks. For the stock, major upward earnings revisions and a valuation rerating could continue to support upside; for the industry, continued DRAM/NAND supply-demand tightness beyond CY27 would reinforce the duration of the memory upcycle.

Risks

• Competition in the memory industry is extremely intense, and operational execution is a key risk.
• A sudden weakening in the PC demand outlook could undermine assumptions for DRAM price recovery and higher memory content.
• Aggressive ASP declines combined with insufficient declines in unit manufacturing costs could lead to downward revisions in revenue and earnings forecasts.
• Any supply-demand imbalance in DRAM or NAND could pressure revenue and margins.
• Changes in NAND demand assumptions could alter the outlook for industry growth.
• Macro-driven demand weakness could reduce demand for Micron’s products and affect revenue and profitability.
• Higher FY26 and FY27 capital expenditures could create risks around capacity, cash flow, and cycle mismatch.

What to watch

• Whether F4Q26 revenue, gross margin, and EPS meet or exceed company guidance.
• Whether absolute DRAM and NAND price levels can be sustained after the pace of price increases slows.
• Whether SCA expands beyond 16 agreements toward management’s target of covering more than 50% of revenue.
• The actual timing of customer cash deposit receipts, especially the approximately $10B deposit expected in F4Q26.
• Whether the HBM4 12-high ramp materializes, whether the HBM TAM revision upward is realized, and whether the annualized level of data center revenue remains sustained.
• Whether growth in FY27 capex and R&D spending leads to increased supply and potential pricing pressure after CY28.
• Shareholder return policy after December 2026, especially the start and scale of buybacks.