Key Takeaways
- Micron fell 17% on Nov. 5 as memory stocks sold off.
- A veteran investor calls memory makers’ long-term supply agreements “basically meaningless,” arguing customers walk away once prices fall hard.
- Micron’s contracts carry take-or-pay volumes and minimum prices, but their disclosed minimum equals only about 12% of next year’s expected revenue.
- Micron trades under 5x forward earnings, near where it sat at the top of the last memory cycle.
Micron Technology (MU) fell 17% to $656.39 on Thursday, Nov. 5. Before the open, Bloomberg reported that Micron had suspended plans for a $4.5 billion plant in Taiwan. Memory peers like SK hynix (SKHY) and Sandisk (SNDK) also fell by double digits.
In a post on X, Niles Investment Management founder Dan Niles said bullish investors “will point to the share buybacks, low PE ratios and long-term supply agreements through ~2030+.”
Jukan, a semiconductor account on X, posted an edited conversation with a veteran investor who disagrees:
“Memory LTAs are basically meaningless. The best the LTAs being signed today can do is get customers to shoulder part of the memory makers’ capex. Once prices fall, customers will gladly forfeit their deposits (prepayments) and walk away from the LTAs.”
He added that “whenever prices fell more than 60% from the peak, customers broke their LTAs even after signing them.”
Micron’s Contracts Have Teeth, but Not Many
Micron has signed 26 strategic customer agreements, which management estimates cover over 35% of revenue through 2030. Its annual report describes take-or-pay terms with binding volumes and minimum prices, and some customers must keep letters of credit Micron can draw on if they default.
Micron disclosed about $134 billion of remaining performance obligations as of Sept. 3, with roughly a quarter expected to become revenue within 12 months. That’s about $34 billion, or 12% of the $275.5 billion analysts expect for fiscal 2027. It’s a disclosed minimum, not total coverage: it leaves out contracts of a year or less and deals without fixed prices or price bands.
The capex point holds up. Customers put down $12.75 billion of deposits in fiscal 2026, against $30.7 billion of capital spending, and nearly all of it is due back between 2029 and 2031.
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Memory Earnings Have Collapsed Before
Analysts expect Micron’s normalized EPS to rise from $75.52 in fiscal 2026 to $176.50 in fiscal 2027 and $207.76 in fiscal 2028.
In the last downturn, gross margin fell from 45.2% in fiscal 2022 to 2.7% in fiscal 2023. That 2.7% adds back a $1.83 billion inventory write-down but keeps an $844 million gain from selling stock written down earlier. Strip out both, and margin was about negative 2.8%. Reported GAAP margin was negative 9.1%.
Micron’s forward P/E last sat this low in 2017 and 2018, and EPS then fell 79%, from $11.51 in fiscal 2018 to $2.37 in fiscal 2020. Repeat that drop from fiscal 2027’s consensus, and Thursday’s close would be about 18x earnings.
Bloomberg Economics chief US economist Anna Wong said on X that monthly price increases for storage drives, computers, TVs and phones have passed their peak pace. That’s slower consumer inflation, not falling chip prices.
SK hynix Sees a Shortage to 2030
SK hynix forecast memory demand outrunning supply through 2030, with agreements covering more than half of its 2027 and 2028 capacity. If that holds, customers may never have a reason to walk away. Analysts still see Micron’s gross margin falling from 87% in fiscal 2027 to 65.5% in fiscal 2030.
What Micron’s Contracts Can and Can’t Do
I wouldn’t buy Micron for its contracts. Take-or-pay terms and letters of credit make them harder to quit than the investor allows. But the only floor Micron discloses is about 12% of next year’s revenue, and it doesn’t say how much its price bands protect beyond that. I can’t bank on record earnings holding on protection I can’t measure.
The fiscal first-quarter report, expected in mid-December, is the next test. If contracted revenue due within 12 months grows from about $34 billion, the agreements get much harder to dismiss.
So What Is Micron Stock Actually Worth?
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