Financial report preview | Even if the Q1 financial report is amazing, does Micron's "storage super cycle" narrative still need more confirmation?

As Micron Technology, Inc. (MU.US) is set to announce its fiscal first quarter 2026 earnings after the U.S. stock market closes on December 17th (morning of December 18th Beijing time), a question has gradually emerged in the market: is High Bandwidth Memory (HBM) really a cyclical commodity like traditional memory chips in the past? The answer to this question may determine whether Micron's $200 billion market value increase since April of this year is justified, and this week's Q1 earnings report may be the litmus test for this American storage giant. Wall Street expects Micron to earn $3.93 per share this quarter, a significant increase from $1.79 per share in the same period last year. Revenue is expected to reach $12.82 billion, a growth of over 45% year-over-year. Micron Benefits from the Storage Super Cycle While debates are ongoing in the market about whether HBM has cyclicality and whether Micron's storage business is still in a prosperous-downturn cycle, the company's stock price has been climbing. Earlier this month, Micron announced its exit from its "Intellicadd" consumer business, which has fueled the debate on the cyclical nature of its business. The market is expecting more definitive answers from this week's earnings report. Currently, Micron is "fiercely competing and leading the way in the HBM field." The latest data shows that Micron's growth advantage in the HBM market continues to expand - the market share has increased by 330 basis points to 25.7%, ahead of the target planned for next year. In the 2025 fiscal year, the core driver of Micron's growth was the rapid expansion of its HBM business, which resulted in the company achieving annualized HBM revenue of $8 billion, accounting for about 21% of its total revenue of $37.4 billion. Throughout the 2025 fiscal year, Micron benefited from the increase in HBM3 (especially HBM3E) capacity. In addition, a significant advantage for Micron so far this year is that its larger industry competitor Samsung (SSNLF.US) has not been able to get its HBM3 products certified by NVIDIA Corporation (NVDA.US) Blackwell GPU due to cooling issues. While Samsung's HBM3E has since been certified, this may slow down the almost duopoly-like dividend that Micron and industry leader SK Hynix have enjoyed in the HBM3E ramp-up phase. Looking at the macro level, the soaring memory prices are undoubtedly driving the entire storage industry - prices have surged by 172% just this year. At the same time, memory bit shipments are expected to increase by around 25% or more this year, forming a strong combination of rising average selling prices and shipments. The unit economic efficiency of the storage business has never been better. This may explain why Micron's management decided to exit the consumer business and focus all its resources on the data center business sector. Currently, the data center business contributes 56% of Micron's total revenue, with a gross margin of 52%. It is worth noting that the gross margin of its data center business is higher than the company's overall level (about 45% in the fourth quarter of the 2025 fiscal year, and about 40% for the whole year). The expansion of the gross margin is a very positive signal, indicating that Micron's business will continue to accelerate growth and factory utilization will continue to improve. Investors can also see that Micron's current inventory days have dropped to 125 days, significantly lower than the over 150 days two years ago. In addition to the progress in the above-mentioned business fundamentals, investors are expected to focus on two other key elements in their Q1 earnings report. First, the market is eager to hear the magical word "sold out" regarding Micron's future HBM capacity. In the last quarter, management did not explicitly state that the supply had been sold out, but said they "expect within the next few months to conclude agreements to sell the remaining portion of our 2026 calendar year HBM supply." This is because the price of HBM3E has already been locked in, and "positive discussions" with customers about HBM4 capacity are still ongoing, with the first shipments of HBM4 expected to start in the second quarter of the 2026 calendar year. The market will eagerly await to hear the words "sold out" next week. Since Micron released its Q4 earnings report in September, a series of billion-dollar contracts related to data center GPUs and XPUs have been announced, undoubtedly expanding the total market potential for Micron's HBM. Market expectations for Micron's 2026 fiscal year revenue have been significantly raised. According to consensus expectations on Seeking Alpha, revenue expectations for the 2026 fiscal year have been raised by 8% since September, with current revenue expected to reach $57.4 billion, a 54% year-over-year increase. The second element of interest for the market is Micron's capital expenditure guidance. According to previous known guidance, capital expenditures are about $18 billion. Based on revenue expectations in September, this accounts for about 34% of the expected revenue for the 2026 fiscal year. If management significantly raises capital expenditures to nearly the average level of about 36% of revenue in previous years, it will truly act as a catalyst for Micron's stock price, which would be an extremely bullish signal. At an investor conference last month, Micron's CFO Mark Murphy did hint that the $18 billion capital expenditure guidance will be revised in the upcoming Q1 earnings report: "There is a pressure this year in that regard. So I would expect that in about a month in our earnings call - we are likely to - we will make that point and update you at that time." Investors will therefore receive the latest information on capital expenditure guidance at that time. It is worth noting that Murphy's comments on capital expenditure guidance were in response to an analyst's question about whether "Micron's business growth can surpass the 8-10 quarter uptrend cycle in the storage industry." In addition to hints about capital expenditures, he also pointed out that "current and future storage supply beyond 2026 will not be sufficient to meet market demand." This significant demand growth is largely due to the market transitioning from 12-layer stacked HBM3/HBM3E to 16-layer stacked HBM4. This statement implies that Micron's growth prospects are expected to surpass the traditional 8-10 quarter industry uptrend cycle, and the company is actively positioning itself to capitalize on this trend. Analysts' Optimism Rises The optimistic expectations before the earnings report have already sparked a wave of analyst upgrades. Top institutions such as Stifel, Nomura, and UBS Group AG have all raised their price targets. Analysts point out that the improvement in memory pricing trends and increased demand for HBM are key driving factors. Deutsche Bank Aktiengesellschaft's Melissa Weathers has raised her price target from $200 to $280. She believes that Micron is well positioned to benefit from the next memory market cycle. HBM is driving industry transformation, which could support higher valuations. Deutsche Bank Aktiengesellschaft has significantly raised its full-year EPS forecast for the 2026 fiscal year by nearly 26% to $20.63, while also increasing its revenue forecast by 12% to $59.66 billion. Citigroup analysts point out that Micron Technology, Inc.'s Q1 earnings report is expected to significantly exceed market expectations. The bank believes that the sharp increase in memory prices and the continued growth in demand for AI applications are the main drivers of Micron stock price strength, maintaining its "buy" rating and raising its price target from $275 to $300. Analyst Christopher Danely expects Micron to achieve "significant better-than-expected performance and guidance revisions", mainly due to "unprecedented increases in DRAM prices." The bank estimates that DRAM prices rose by 50% quarter-over-quarter in the fourth quarter of 2025, well above previous expectations. Citigroup also notes that Micron's "2026 HBM capacity has sold out", and says that as the entire industry begins negotiating long-term DRAM supply agreements, Micron is expected to receive "large capital injections from AI clients." Micron's stock price may already reflect future expectations There is no doubt that Micron may be at the beginning of a super cycle. The company has begun to see the added value from its investments, allowing it to take advantage of favorable conditions. The Q1 earnings report is likely to showcase Micron's strong performance. However, it is important to note that from a stock price perspective, the market may have already priced Micron above Q1 expectations. Currently, Micron's stock price multiple relative to its book value is as high as 5.5 times, reaching a high not seen since the dot-com bubble era. Valuing Micron is not an easy task. Due to the cyclicality of its past business, the market typically tracks its book value to find the peak of its cyclical prosperity. The current valuation clearly indicates that the market is no longer viewing Micron through the lens of the traditional prosperity-downturn cycle theory, but is expecting the company to enter some kind of super cycle or to finally break free from cyclicality and move towards long-term growth. Therefore, to value Micron for next year, the following analysis will focus on its revenue trends and market expectations, to observe the market's estimates of its stock price. Reviewing the long-term revenue expectations for Micron in the 2023 and 2024 fiscal years, the average revenue growth for these two fiscal years is around 44-45%, corresponding to a forward Enterprise Value/Revenue (EV/Forward Revenue) multiple of about 3.4-3.5 times. However, the actual situation is that Micron's revenue grew by 62% in the 2024 fiscal year and about 49% in the 2025 fiscal year, exceeding previous expectations. Based on these historical expectations, combined with the assumption that Micron's revenue for the 2026 fiscal year is estimated at $57 billion (implying a 53-54% growth), Micron's valuation should be about 4.5 times the expected revenue for the 2026 fiscal year. However, the market currently values Micron at 5.1 times the expected revenue for the 2026 fiscal year, meaning that the market expects Micron to achieve about 63% growth this year, 10% higher than the prevailing expectation of about $57 billion. In summary Given the current storage super cycle, Micron's Q1 earnings report and conference call this week will undoubtedly be closely watched, as the company may further confirm its storage business continues to benefit from the trend of the super cycle, ending the market's debate on it. While the company's long-term business fundamentals continue to support Micron's growth, its stock price has risen significantly in recent months, and whether the market can continue to react positively after the earnings report remains to be seen.