Micron Could Shock Wall Street Tomorrow | MU Earnings Preview

Micron reports earnings tomorrow, but I think that this could be one of the most important reports that we've gotten from this company in a very long time. Because the question isn't whether or not memory demand is strong anymore. The question is how strong it's become and whether Wall Street is still underestimating what Micron could earn if these prices trend higher. I've gone through my own estimates, what I think that Micron could report tomorrow, and most importantly, what the next few quarters could actually look like. But there's one piece of data coming out of Korea right now that gives us a pretty interesting clue about where we could be headed. So let's start there. Throughout the time of Q3, which well they report a Q4, but anyway, the calendar Q3, we've seen Korean DRAM prices skyrocket and going forward even into NAND prices into August. So these two pictures were taken at different times and so you can see that price in DRAM export prices raised but then in August it went vertical for NAND and the belief is that this is also very similar for DRAM prices as well maybe not as sharp but that pricing for Korean DRM and NAND is spiking up now yes this is South Korean pricing it's not necessarily Micron but they are similar competitors shipping similar products to what is identical customers this is to the Nvidas to the AMDs to the Amazon Google's the main purchasers of these products. I also wanted to look at what Elon said about memory prices because one of the biggest concerns is that this business is cyclical. But not only is it cyclical because it it definitely is, but it's a matter of how quickly does this cycle last because a lot of people are suggesting that this might be 18 months left. Elon has something to say about that and said it during his Q2 transcript for SpaceX. Look at the rate at which logic and memory is being produced. One must always consider the limiting factor here. And currently that limiting factor is memory. The memory output is increasing by roughly 20% per year because there are new fabrications coming online and they're also able to scale up their current fabs. So it's not just about setting up new fabs, which we scale out, but they're being able to produce more at those current factories. Now, normally that would be fantastically fast and amazing for any large mature industry. But ask yourself, is the demand increasing by 20% per year? No. The demand is increasing by more like 200% per year, maybe even higher. So, if you have got demand increasing much faster than the supply, economics 101 would suggest that the price increases. It does not decrease. Now if we were to look back at what Micron had ended up saying for their next quarter, they are expecting a large amount of growth like 50 to 51 billion of revenue gross margins at 86% which is way higher than what we've seen in previous quarters and then also flowing down to diluted earnings per share roughly 31 maybe $32 per share. Now, whenever you look at what Wall Street's expecting, they are actually expecting roughly 51 to 51.2 billion dollar. The high end of this from Wall Street is as high as like 59 billion. So, there are some people that are believing that it's going to be way higher than what Micron is even suggesting here. And then that ends up continuing the high amount of growth rate until we end up seeing this drop off. And the drop off does not mean less growth. It means decelerating growth rate. So, we're still expected to grow. It's easier to grow off of let's say for this quarter off of an 11 billion base versus last quarter $ 41 billion. It's hard to then four and a halfx off of $41 billion. So my expectation is actually coming in at roughly 55 to 56 billion in revenue. Roughly 7% to 9% beat versus Wall Street expectations. That's just for revenue. Whenever we look to EPS, EPS sitting expectations $3159. That's 59 higher than what Micron had said in their previous report. Mind you, that report was written before the parabolic changes in DRAM and NAND pricing which happened in July, August, and even September is expected roughly I've seen reports from anywhere from an 8% month-over-month jump to a 20% month-over-month jump. So that's also inclusive in some of the expectations that people have for Micron and then their guidance going forward which next quarter they're expecting $35. My expectations $34 in EPS. As a reminder I'm being super conservative with these numbers and I'll show you guys why but the beat versus Wall Street expectations 7.6%. Now normally this would be extremely extremely aggressive. My problem is that the ability for Wall Street to be able to guide for Micron's sales has just been off. As you can see, they've been constantly beating Wall Street expectations. I've sort of said that this beat happens anywhere from 7 to 9%. But as of most recent guidance that we've seen where the spike up in revenue really started, we've seen 24% beats, 18% beats on EPS, 41%, 24%. And now we're still seeing prices go parabolic. They're not staying stagnant. They are able to add on new supply quarter over quarter. We will see higher amounts of overall volume sales, but average selling price is really what people are paying attention to. I actually think that I'm coming in pretty conservative here versus some people's expectations. And then on top of that, there's just some other areas that I think are being left out right now whenever people are talking about Micron. Total cash ended up spiking up greatly. Whenever you have this level of growth, this is like on a quarterly basis to in in a six-month period to bring up cash from $10 billion up to $26 billion is I mean one it's uncommon. The more uncommon fact is that that happened without dilution and that happened while paying down debt. A lot of the times whenever you see companies cash jump up that large, it's usually that their debt also ended up spiking up. That's not what's happening. This is while they're paying off their debts. And I think what's going to be the big focus for Micron going forward is that you're going to see this debt end up falling to a very very nominal level while cash continues to slightly tick up even further. But as of what Micron said, their expectations is not to keep just an unbelievable amount of cash. Right now due to chips restrictions set by the Biden administration, Micron is not allowed to buy back shares until December 9th. After December 9th, they will be able to buy back shares. UBS actually came out and did a report on this. They said, "Hey, the likelihood is that we are going to see roughly 40% of outstanding shares being purchased by the end of 2028." 40% of outstanding shares. So that gives an immediate boost up on Micron's overall stock price without actually affecting market share. It means that every share that you own of this company represents a sliver of the ownership in this business. But if they remove, let's say for easy math, 50% of outstanding shares, your ownership in that company doubles. If you're looking at this like a pi graph, everyone's shares get a little bit wider. But 40% is no joke. So if you look at what just brought up, Nvidia's shares yesterday, they just announced a buyback program of $150 billion. Well, that represented roughly 4% of their outstanding shares, and the company went up roughly 3%. If we were to buy back 40% of Micron using this supply constraint, this pricing advantage, well, the price could end up skyrocketing up quite high. And one of the biggest push backs I hear from buying Micron here at these prices is that well, the price has already done so well. If you look back all the way to, let's say, May of 2025, roughly around here, that was $97 a share. from $97 a share, we are now $1,050 plus dollars at the time that I took the screenshot, which was last night. So yesterday's close. Looking today, however, whenever you look at this from a valuation perspective, you would expect that you'd have to pay a lot more for this business. And I don't mean on a per share basis. I mean on a per earnings basis, price to earnings ratios. So, we look forward on this business. We say, "Hey, back whenever you were paying for this business at $97 a share. This company had roughly about a 7.5 times forward PE. Today, it's actually lower. The company is cheaper on a forward PE basis at $1,080 because of the growth in earnings. meaning that the growth in earnings and the growth of earnings expectations is actually slightly larger than when it was on a per share basis than when it was back at $97 per share. And you can see these large drop offs because what this means is actually a really good sign means that earnings came in way hotter than people expected and the company was not quick enough to adjust its pricing. And you see this constantly here, big drop, then another major drop back in February. These are all earnings reports. Wall Street ends up rerating the company and then price to earnings expectations drop. If we were to go back and we look at these major expectations for earnings, the expectations have constantly been rerated. And it looks like if we go back on the expectations for growth, they haven't quite changed their mind. If you were to look at Micron's expectations of revenue in EPS, EPS for full year, even as early as just going from September 22nd, 2026 to now, expectations for 2028 have gone from 171 to 181. Expectations for 2026 went from $7344 up to $73.88. They're still growing in terms of their guidance. Then whenever we go down to revenue, same thing. We're seeing even most recently 2027 241 billion or 2028 269 billion is now 250 and 285. So we're still writing those expectations higher and so you're bringing up all these expectations into the green whether that's in the last month in the last 3 months expectations for this company have constantly been rerated. My question is what's the likelihood that Micron ends up beating and raising once again? We've not seen a slowdown in artificial intelligence use and in fact we've probably seen nothing but a ramp up and an expectation that we're going to need new CPU demand, new GPU demand and even going as far out as saying Nvidia GPUs as of the last 3 months, this was just a recent report that their lead times have gone from 6 weeks up to 40 weeks. So even the biggest producers in the world are seeing tighter supply now than back whenever Micron had given this initial report of 50 plus billion dollars. If you want to take this even one step further, you would look to some of the big names. So, we look to South Korean pricing. Let's look to some of the South Korean companies. One of the biggest, if not the biggest, Samsung. Samsung is now actually reporting that they have 10y yearlong long-term agreements and also signing new 5-year agreements. But since they've started signing these one-year agreements, that also has been pushed another year because now they're signing new 5-year agreements today that will go out for another five plus years. It doesn't have the same end date. The date is now pushed one extra year. So the expectation of whenever this growth is expected to peak is constantly changing. And that's just one of the things that I think is so interesting about memory and why I take a look at these Wall Street expectations and see this massive drop off and I just wonder are we sure about these expectations at 51 or 57 billion or will we have to rerate this tomorrow to say hey August of 2027 it's actually probably going to be somewhere along the lines of let's say $73 billion because supply has not untitened. There's no TSMC of memory that's unlocking all this potential new supply. And as Elon said, although there is supply expected to come online in mid 2027 or late 2027, that might only unlock 20% more supply. We're not growing by 20%. And then even if the supply does come online and margins end up coming down a little bit, let's say from 86% gross margins down to 60%. Unbelievable drop in average selling prices. What does that do to Micron? Do companies like Nvidia then just say, "Okay, we're just going to take all those savings and enjoy a high higher margin for ourselves." AMD might not make the same decision. They might end up increasing their memory use, whether that's DRAM, LPDDR, any of these different solutions, HBM, and then end up saying, "Hey, if we can afford more, we will buy more." Which is going to force in that prisoner's dilemma amongst AMD and Broadcom and Nvidia to then purchase more memory over time. Yes, the biggest problem is that there might be a breakthrough eventually with with memory. I think some reports are saying as early as 2031 that things like 3D RAM are going to come online. It's going to massively compress and speed up the ability to get to same levels of memory but for much cheaper costs and smaller space that's needed in the fab. So, there are types of solutions like this that might change the game. But it's 2026 and the amount of shares that you can purchase at this point with a forward PE of seven times just makes it still look like an extreme opportunity. If it's not coming online till 2031, how many outstanding shares? If open investors are not willing to buy the company, can Micron buy their own company to a point where you're buying 40 50 plus% of outstanding shares? Going back to what I initially started with, my expectations are conservative but less conservative than Wall Street. I expect that revenue is going to come in at roughly 55 to $56 billion while EPS is going to come in at $34. Slightly above Wall Street expectations, 67% beats, nothing too crazy, but obviously still bullish. And that's why I'm buying the stock because I think even a beat in the high single digits will lead the stock higher as long as they can improve some of the guidance going out forward. As long as guidance stays high and as long as the long-term contracts come in higher than expectations, which is really what brought the stock down last quarter, it should be a really good report. But we'll see whether I'm right or wrong tomorrow at the close which I'll be live streaming as