To The Moon

After the close on Wednesday, memory giant $Micron Technology(MU)$ released its fiscal Q2 2026 results, covering the three months ending February 26.
Compared with analyst expectations, Micron’s Q2 results significantly exceeded forecasts:

Among them, Micron’s Q2 revenue reached $23.9 billion, surging 196% year over year and far exceeding analysts’ expectations of $19.7 billion:

Micron’s revenue is primarily driven by DRAM (dynamic random-access memory), accounting for nearly 80% of total revenue, while NAND (non-volatile memory) makes up close to 20%:

DRAM can be seen as the “short-term memory” of computers and servers, temporarily storing data in use. It is fast, but data is lost when power is cut. NAND is slower, but offers larger capacity and retains data even without power.

DRAM and NAND are among the most critical components in AI servers. On one hand, as AI model parameters continue to grow, massive amounts of intermediate data are generated during computation, requiring high-end DRAM products such as HBM3E (high-bandwidth memory). On the other hand, large models also need more NAND for data storage.

In the high-end DRAM market, SK hynix, Micron, and Samsung Electronics dominate globally:

Revenue of HBM

Driven by the explosive surge in AI demand, DRAM has faced supply shortages, pushing prices sharply higher—from $8 per unit in September 2025 to $32.5, an increase of more than fourfold:

As a result, Micron’s average selling price for DRAM rose 65% quarter over quarter, while NAND increased by nearly 80%. In contrast, shipment volumes for both DRAM and NAND saw only slight sequential growth:

Following the sharp rise in prices, Micron’s profitability surged, with gross margin reaching 74.4% in fiscal Q2 2026—a record high—and projected to hit 81% next quarter:

What does an 81% gross margin mean? For comparison, even AI leader $NVIDIA(NVDA)$ ’s gross margin is only around 75%:

It is worth noting that Nvidia is a chip design company with an asset-light model—it does not manufacture chips but outsources production to TSMC and Foxconn. Micron, by contrast, not only designs memory chips but also manufactures them itself, making it a truly asset-heavy company.

Combined with the fact that Micron is a supplier to Nvidia, meaning a component company now has higher profitability than its own customer, this highlights just how extraordinary the current memory price cycle is.

Looking ahead to the next quarter, Micron’s performance is expected to be even more explosive, with revenue projected at around $33.5 billion, up 260% year over year and far exceeding analysts’ expectations of $23.7 billion—surpassing its entire fiscal 2024 annual revenue in just one quarter. Adjusted gross margin is expected to reach 81%, also well above the consensus estimate of 72.4%.

Overall, Micron’s earnings report is exceptionally strong.

During the earnings call, management signaled that demand remains robust while supply continues to be tight. They noted that shortages in DRAM and NAND are likely to persist beyond 2026, with meaningful new capacity not expected until 2028.

As for when demand might be fully met, management indicated it is difficult to predict, given the rapid pace of development in AI agents.

From peers’ commentary, SK hynix executives stated that “AI-driven demand continues to outpace supply, and structural bottlenecks in chip production mean the global memory shortage is likely to persist until 2030. At the same time, prices for DRAM, NAND, and HBM are expected to keep rising, with the uptrend potentially lasting for an extended period.”

Although supply shortages persist, this is not new, and the positive impact of rising memory prices has already been reflected in Micron’s share price, as evidenced by its counter-trend move to record highs ahead of the earnings release.

Following the sharp rally, Micron’s price-to-book ratio has exceeded 7x, approaching that of $Taiwan Semiconductor Manufacturing(TSM)$ :

Therefore, when the market learned that Micron plans to increase capital expenditure by $10 billion to expand capacity, concerns quickly emerged that once supply and demand rebalance, its exceptionally high profitability may not be sustainable. Combined with rising geopolitical tensions in the Middle East, surging oil prices, and a slower pace of Fed rate cuts, tech stocks came under pressure, leading to weak post-earnings performance for Micron’s shares.

In reality, however, Micron’s fundamentals remain solid. Moreover, through Micron’s outlook, it is not hard to see that other semiconductor companies are still thriving—especially semiconductor equipment firms, which stand to benefit significantly from the massive capex plans of fabs like Micron.

From last night’s U.S. market performance, the $NASDAQ(.IXIC)$ fell 0.28%, while semiconductor equipment companies led by Applied Materials rallied against the trend: $Applied Materials(AMAT)$ rose 2.2%, $Lam Research(LRCX)$ gained over 4.1%, and $KLA-Tencor(KLAC)$ increased nearly 2%:

Chip design companies also performed well, with $Broadcom(AVGO)$ rising over 1%, $Advanced Micro Devices(AMD)$ gaining nearly 3%, and $Intel(INTC)$ up more than 2.5%, all outperforming the broader market.

Therefore, once tensions in the Middle East ease and market risk appetite recovers, semiconductor companies are likely to lead the rebound, making related ETFs worth watching.

For example, the largest semiconductor ETF, $VanEck Semiconductor ETF(SMH)$ , rose 0.32% against the trend yesterday, while $INVESCO SEMICONDUCTORS ETF(PSI)$ gained 1.85%:

Notably, year to date, $INVESCO SEMICONDUCTORS ETF(PSI)$ has gained over 23%, $First Trust Nasdaq Semiconductor ETF(FTXL)$ more than 18%, and $iShares Semiconductor ETF(SOXX)$ over 13%, all significantly outperforming the broader U.S. market.

Even as they outperform, there are signs of easing tensions in the Middle East. The U.S. has warned Israel against further strikes on Iran’s energy facilities, while Israeli Prime Minister Netanyahu stated that the war could end much sooner than expected.

Overall, the U.S. and other countries are unlikely to tolerate oil prices above $120 for an extended period. Once oil prices peak and begin to fall, their negative impact on equities will fade, and the market may start to anticipate a new TACO trade.