Micron (MU) Q1 2026: HBM Revenue Fully Booked for 2026 as $20B CapEx Signals AI-Driven Supply Squeeze
Micron’s Q1 2026 marked a historic inflection as AI-fueled demand left HBM supply fully contracted for 2026 and forced a $2B CapEx increase to $20B. Management is now guiding for persistent supply shortages and record financials, while multi-year customer contracts and accelerated U.S. fab buildouts redefine industry dynamics. Investors face a new memory market regime where capacity, not demand, is the binding constraint through at least 2028.
Summary
- HBM Supply Locked: Entire 2026 HBM output is committed, highlighting structural undersupply in AI memory.
- CapEx Escalation: $20B spend focused on HBM and advanced DRAM, with U.S. fab timelines pulled forward.
- Margin Expansion: Tight supply and price discipline drive record profitability and cash flow guidance.
Performance Analysis
Micron posted its third consecutive record quarter, with revenue, gross margin, and EPS all exceeding the high end of guidance. DRAM, the company’s core business representing 79% of revenue, saw a 69% YoY surge as tight industry supply and a 20% price increase drove both top-line and margin expansion. NAND, at 20% of revenue, also set a record with a 22% YoY increase, reflecting both higher bit shipments and robust pricing. Every business unit—cloud, core data center, mobile/client, automotive/embedded—set new revenue records, underlining broad-based demand strength.
Gross margin climbed 11 percentage points sequentially to 56.8%, propelled by pricing power and favorable product mix. Operating margin reached 47%, and free cash flow hit a new high, exceeding the prior record by 20%. Inventory days remained disciplined, especially for DRAM, despite aggressive output. Share buybacks resumed within CHIPS Act constraints, and net cash position was restored as debt was reduced by $2.7B.
- Cloud Unit Dominance: Cloud memory revenue hit $5.3B (39% of total), with 66% gross margin as hyperscaler demand accelerated.
- Data Center and SSD Upswing: Core data center revenue rose 51% sequentially, driven by enterprise SSD and HBM mix shift.
- Mobile/Client and Auto Embedded: Each segment posted double-digit sequential growth, with automotive/embedded gross margin up 14 points.
Micron’s financial model is now levered to AI-driven supply tightness, with every margin and cash flow metric showing upward momentum as capacity becomes the gating factor.
Executive Commentary
"We have completed agreements on price and volume for our entire calendar 2026 HBM supply, including Micron's industry-leading HBM4. We forecast an HBM TAM CAGR of approximately 40% through calendar 2028, from approximately $35 billion in 2025 to around $100 billion in 2028."
Sanjay Mehrotra, President and Chief Executive Officer
"In fiscal Q1, operating cash flows were $8.4 billion, and capital expenditures were $4.5 billion, resulting in free cash flow of $3.9 billion. Fiscal Q1 free cash flow was a quarterly record, exceeding our prior record in fiscal Q4 2018 by over 20%."
Mark Murphy, Executive Vice President and Chief Financial Officer
Strategic Positioning
1. AI Memory Scarcity and Multi-Year Contracts
Micron’s entire 2026 HBM output is now committed under multi-year contracts, a first for the company and a signal of fundamental regime change in memory industry bargaining power. These contracts, spanning DRAM and NAND, are described as “far stronger” than prior LTAs, locking in both volume and price commitments out to 2027 and beyond. This shift turns memory supply into a strategic asset and creates a floor under pricing and margin structure.
2. CapEx Acceleration and U.S. Manufacturing Buildout
CapEx for fiscal 2026 is now pegged at $20B, up from $18B, with over half targeted at HBM and advanced DRAM nodes (1 Gamma and beyond). Micron is accelerating U.S. fab timelines, pulling forward Idaho capacity to mid-2027 and initiating New York construction in early 2026. This U.S. focus is driven by both customer pull (hyperscalers seeking domestic supply assurance) and policy support (CHIPS Act), with global expansions in Japan, Singapore, and India also underway.
3. Technology Leadership and Product Mix Optimization
Micron’s technology roadmap is a core differentiator: four straight DRAM nodes and three NAND nodes of industry leadership, with 1 Gamma DRAM and G9 NAND now ramping. HBM4, sampling at over 11Gbps, is set for high-yield production in CQ2 2026, and the company is leveraging in-house logic and packaging to sustain performance and power leadership. Product mix is being actively managed to maximize profitability, with both HBM and non-HBM DRAM in high demand.
4. Supply Constraints as Structural Tailwind
Industry-wide supply is now structurally short through at least 2026, with Micron able to meet only 50% to two-thirds of key customer demand in the medium term. Node transitions, not greenfield expansions, are the main source of bit growth in 2026, and cleanroom buildouts face long lead times across geographies. This constraint underpins management’s conviction in sustained pricing and margin gains.
5. Margin Expansion and Cost Discipline
Gross margin expansion is driven by price increases, favorable mix, and tight cost control, with operating leverage from higher volumes and disciplined OpEx. Startup costs for new fabs will begin to show in late 2026 and 2027, but are expected to have a modest impact relative to the scale of the business.
Key Considerations
Micron’s Q1 2026 marks a decisive shift from cyclical memory economics to a supply-constrained, contract-driven model, with AI infrastructure as the primary demand engine. Investors must recalibrate expectations around pricing power, margin sustainability, and capital allocation as the company pivots to long-term supply assurance and strategic customer partnerships.
Key Considerations:
- HBM as the New Bottleneck: With HBM supply sold out for 2026 and demand outpacing industry capacity, Micron’s ability to execute on technology ramps and fab buildouts is now the key value driver.
- Multi-Year Contracting Redefines Risk: Stronger, longer-term customer agreements reduce revenue volatility but may cap upside if market prices spike above contract levels.
- CapEx Intensity and Returns: $20B CapEx is below historic capital intensity due to operational leverage, but investors should watch for further increases as new fabs come online in 2027 and beyond.
- Margin Durability: Record gross and operating margins are supported by structural tightness, but input cost inflation, yield ramp risks, and customer mix shifts remain variables.
Risks
Micron faces execution risk in ramping advanced nodes and new fabs, with potential for yield or cost overruns as capacity is added. Supply-demand imbalance could reverse if macro or AI infrastructure spending slows, and customer concentration risk is elevated as hyperscalers negotiate multi-year deals. Tariff and geopolitical risks are not included in current guidance, and any new trade restrictions could impact supply chains or capital allocation.
Forward Outlook
For Q2 2026, Micron guided to:
- Record revenue of $18.7B, plus or minus $400M
- Gross margin of 68%, plus or minus 100 basis points
- Operating expenses around $1.38B
- EPS of $8.42, plus or minus $0.20
For full-year 2026, management expects:
- Substantial new records in revenue, gross margin, EPS, and free cash flow
- CapEx of $20B, weighted to the second half
Management emphasized the durability of supply tightness, continued price strength, and a constructive margin environment, with upside from further AI adoption and new contract structures.
- Persistent supply constraints through 2026 and likely beyond
- Margin expansion to moderate after Q2 but remain structurally high
Takeaways
Micron’s Q1 2026 signals a new memory market era, with AI infrastructure driving both demand and supply discipline. HBM supply is now a strategic asset, and execution on capacity ramps will define investor returns over the next several years.
- Supply-Led Profitability: Record financials and guidance are underpinned by chronic undersupply, not just demand strength.
- Strategic Customer Lock-In: Multi-year contracts shift bargaining power to Micron, but may also limit spot market upside.
- Execution Watch: Investors should monitor fab buildouts, node ramps, and customer contract disclosures for signals on future upside or risk.
Conclusion
Micron enters 2026 with all cylinders firing—AI-driven demand, full HBM book, and record profitability—while CapEx acceleration and multi-year customer contracts set the stage for a structurally tighter, more predictable memory industry. The challenge now is execution on capacity and technology, with supply discipline and customer alignment as the new competitive moats.
Industry Read-Through
Micron’s results and commentary are a wake-up call for the entire semiconductor sector: AI infrastructure is driving memory and storage from commodity cycles to strategic bottlenecks. HBM scarcity and multi-year contracting will likely ripple through other suppliers, raising barriers to entry and shifting bargaining power to those with leading-edge capacity. Hyperscalers and system OEMs may accelerate vertical integration or co-investment in supply chains, while memory makers without advanced node leadership or geographic diversification face margin and share pressure. Expect further CapEx inflation and supply chain localization across the industry as AI demand outpaces traditional capacity planning models.