For every $100 of memory chips Micron sold this summer, it kept $87 after manufacturing costs…
A year ago it kept just $46.
And last night Micron as reported its Q4 rearnings… I got the blowout I expected…
Record profits… record free cash flow… customer commitments are now solidifying through 2028 all the way to 2031…
So much for 2027 being the year that supply finally catches up…
Yet the stock barely moved…
To understand why, we need to look at the bond market…
The 10-year Treasury yield touched 5.3% yesterday.
So when Uncle Sam will pay you over 5% a year… guaranteed… for a decade… any stock has to work very hard to earn your money.
Especially a stock from what has traditionally been the most cyclical of industries…
Memory has followed the same script for decades.
Prices soar, everyone builds factories, the world drowns in chips, prices collapse.
So skeptics are looking at Micron’s 87% margin and asking…
How long can this last?
Funnily enough - Micron DID answer that on the call
The specialized memory that sits next to AI chips (called HBM) is already mostly sold for 2027, at significantly higher prices. Customers keep asking for more than Micron can make.
Management expects the shortage to be tighter in 2027 and 2028 than it is today.
Then even more bullish… Micron has signed 26 long-term deals with major customers that it expects to cover more than 35% of revenue through 2030.
Historically a memory maker was like a farmer, selling at whatever the market paid on harvest day. These contracts make Micron look more like a landlord with long leases.
Guidance for next quarter is $61.5 billion in revenue at roughly an 86% margin. Management said that margin should be the low point of the year.
All of this is insanely bullish…
(And it bloody better be seeing as 25% of my portfolio is affected by this trade)
But if yields keep climbing, the share price can stay stuck no matter what the business does.
But the stock and the business are now answering two different questions…
The business has never looked stronger… and that’s good enough for me.
Oliver