Micron (MU) Q4 2025: DRAM CapEx Jumps to $18B, Tight Supply Drives Margin Surge
Micron’s Q4 2025 call revealed a decisive pivot toward DRAM, with net CapEx jumping to $18 billion for fiscal 2026, signaling a full-throttle response to persistent supply constraints and AI-driven demand. The company’s strategic exit from lower-ROI managed NAND and an assertive ramp in HBM and advanced DRAM nodes underpins a margin expansion narrative. Investors should focus on the company’s ability to sustain pricing power and execute on new capacity as hyperscaler and AI server demand reshape the memory landscape into 2026.
Summary
- CapEx Reallocation Accelerates DRAM Focus: Micron’s capital deployment sharply pivots to DRAM, deprioritizing NAND investments.
- Portfolio Mix Drives Profitability Surge: High-value data center and HBM products now dominate, pushing margins to multi-year highs.
- AI Server Demand Reshapes Industry Dynamics: Persistent supply tightness and hyperscaler storage needs set the stage for continued pricing power.
Performance Analysis
Micron’s Q4 2025 results showcased a business in transition, with DRAM outpacing NAND in both strategic focus and profitability. Data center and AI-related demand now comprise over half of total sales, a structural shift that is reshaping the company’s revenue mix and margin profile. DRAM supply remains extremely tight, with management citing “record share after record share” in data center SSDs and robust HBM (High Bandwidth Memory, a premium DRAM variant for AI workloads) ramp momentum.
NAND bit shipments were down, but management attributed this to “mix-driven noise” rather than underlying demand weakness, and signaled that hyperscaler storage needs will drive a NAND recovery into calendar 2026. Gross margins surpassed mid-2022 levels, with operating margins reaching their highest point since 2018, as Micron capitalizes on premium product mix and industry-wide supply constraints.
- Data Center and AI Mix Expansion: Over 50% of revenue now comes from high-value data center and AI server products, up from roughly a third in prior cycles.
- Margin Recovery Outpaces Expectations: Gross and operating margins exceeded prior guidance, fueled by tight DRAM supply and improved NAND portfolio profitability.
- CapEx Signals Long-Term Bet: Fiscal 2026 net CapEx target of $18 billion overwhelmingly allocated to DRAM, reflecting conviction in sustained AI-driven demand.
Micron’s execution on advanced node transitions (1-gamma DRAM) and HBM ramping has become a primary lever for both competitive positioning and margin durability. NAND, while lagging DRAM in profitability, is expected to benefit from hyperscaler HDD shortages, with high-capacity SSDs set to drive average capacity per server materially higher in 2026.
Executive Commentary
"We expect driven by that tailwind for the NAND industry conditions to start improving. And certainly our position in the data center SSD market where we have been hitting record share after record share for several years now and have a really strong position in the market for us to benefit from that data center SSD position, competitive position that we have."
Sumit Sardana, Chief Business Officer
"We’re saying that we’re going to go from 13.8 net in 25 to net approximately 18 billion in 26. And the vast majority of that is for DRAM construction and equipment."
Mark Murphy, CFO
Strategic Positioning
1. DRAM-Centric Capital Allocation
Micron’s fiscal 2026 net CapEx jump to $18 billion, up from $13.8 billion, is almost entirely earmarked for DRAM construction and equipment. This signals an aggressive bet on DRAM’s long-term demand curve, driven by AI, HBM, and hyperscaler workloads. NAND investment is being held flat, reflecting a clear prioritization of higher-ROI segments.
2. HBM and Advanced Node Leadership
HBM now anchors Micron’s premium product strategy, with management targeting market share gains in calendar 2026 as HBM4 ramps. Micron claims “the highest performance amongst any competing product” for HBM4, with power and bandwidth advantages that are resonating with AI customers. The company’s rapid yield and capacity improvements in 1-gamma DRAM nodes are also expected to be a primary supply unlock for fiscal 2026.
3. Portfolio Rationalization and ROI Discipline
Micron’s exit from managed NAND for smartphones is a decisive move to concentrate resources on higher-margin opportunities, particularly in data center SSDs and HBM. The NAND business, after years of subpar returns, has now delivered a second consecutive year of positive free cash flow, reflecting improved portfolio mix and cost discipline.
4. Data Center and AI Mix Transformation
Data center and AI products now represent the majority of Micron’s business, a marked shift from past cycles where no segment exceeded a third of revenue. The company’s $10 billion in fiscal 2025 sales from HBM, high-capacity DIMMs, and LP DRAM underscores this transformation. Management expects this mix to continue expanding, driving both pricing power and structural margin improvement.
5. Supply Constraints and Pricing Power
Persistent DRAM supply tightness, coupled with extended DDR4 lifetimes and slow node transitions, has created an environment where incremental capacity is difficult to bring online. This dynamic is expected to sustain pricing power well into 2026, with Micron’s Idaho fab not contributing meaningful volume until the second half of 2027.
Key Considerations
Micron’s Q4 2025 results reflect a company capitalizing on a generational demand shift, but execution risks remain as capital intensity and customer expectations escalate.
Key Considerations:
- AI Demand as Double-Edged Sword: Hyperscaler and AI server growth is driving mix and margin, but also raises the bar for sustained innovation and supply ramp execution.
- CapEx Intensity and Payback: The $18 billion DRAM CapEx bet requires flawless execution on node transitions and market share capture to justify returns.
- Portfolio Discipline: Exiting managed NAND is a positive for ROI, but increases dependence on volatile, high-value segments.
- Supply Chain and Tariff Complexity: U.S. fab construction, potential Section 232 tariffs, and evolving customer LTAs (long-term agreements) add layers of uncertainty to cost and pricing models.
- Margin Sustainability: Gross margin expansion is driven by mix and price, but faces limits if supply catches up or if hyperscaler demand moderates.
Risks
Micron’s forward trajectory is heavily exposed to sustained AI and hyperscaler demand, with execution risk on advanced node ramps and fab construction timelines. Tariff policy shifts, supply chain disruptions, and customer concentration could destabilize pricing power. The company’s increased capital intensity heightens the risk if market conditions soften or if competitors accelerate capacity additions.
Forward Outlook
For Q1 2026, Micron guided to:
- Continued tightness in DRAM supply, with incremental bit growth primarily from advanced node transitions
- Stable to improving NAND conditions, with a focus on high-capacity SSDs for hyperscalers
For full-year 2026, management maintained a net CapEx target of approximately $18 billion,
- Vast majority directed to DRAM construction and equipment
Management highlighted:
- Confidence in selling out HBM supply for calendar 2026
- Further margin expansion potential as data center mix increases
Takeaways
Micron’s strategic repositioning toward DRAM and AI-centric products is producing tangible financial and competitive gains, but the company’s future hinges on execution and the durability of AI-driven demand.
- CapEx and Supply Bet: The $18 billion DRAM CapEx signals conviction in long-term demand but raises the stakes for execution and ROI discipline.
- Margin Leverage from Mix Shift: High-value data center and HBM products are structurally lifting margins, but sustainability depends on continued AI demand and supply constraints.
- Execution Watchpoint: Investors should monitor advanced node ramps, fab timelines, and customer contract structures as key determinants of future outperformance or risk.
Conclusion
Micron enters fiscal 2026 with momentum, powered by a strategic pivot to DRAM, premium product mix, and robust AI data center demand. The company’s ability to deliver on its $18 billion CapEx plan and sustain pricing power will define long-term value creation.
Industry Read-Through
Micron’s results confirm that AI server and hyperscaler demand is structurally reshaping the memory industry, driving both margin expansion and capital intensity for leading players. Competitors with lagging node transitions or less exposure to high-value data center products risk margin compression and lost share. The NAND market’s recovery hinges on hyperscaler HDD shortages, suggesting further upside for SSD suppliers. Industry-wide, the race for advanced node DRAM and HBM capacity is intensifying, with supply constraints likely to persist until new fabs come online in late 2027 or beyond.