A Seeking Alpha analysis argues that Micron's HBM margin drag will flip into a profit driver in 2027.

When I last wrote about Micron Technology, Inc. (MU) on Sept. 18, the stock was at $977.50. In the weeks since, Micron delivered a blowout quarter, with revenue coming in at $54.23 billion, up from $41.46 billion the quarter before, and beat the $50 billion midpoint of Micron's own guidance by about 8.5%.

Even so, the stock slid 16% over five straight sessions through Oct. 14, with most of the push coming out of China. Meanwhile, the Dec. 9 date I flagged last time now has a price tag on it; more on that later.

For now, my rating isn't going anywhere, and the new guidance is the best place to see why. It also sets up a bigger story, because the HBM product that has dragged on Micron's margins looks set to become a lift.

Micron's $61.5 Billion Guide Points to 22% Weekly Revenue Growth

For the fiscal first quarter of 2027, Micron guided revenue to $61.5 billion, plus or minus $1.5 billion, along with a gross margin of about 86.25%, operating expenses of about $2.06 billion, and adjusted EPS of $38.15, plus or minus $1.

At first glance, that is only about 13% above the fourth quarter. But the fourth quarter had an extra week, which makes a straight comparison look smaller than it really is.

On a weekly basis, revenue goes from about $3.87 billion to about $4.73 billion, or roughly 22% growth.

The same math works on earnings. If I adjust the fourth quarter's $33.42 in EPS for a normal 13-week quarter, I get about $31.03, so the $38.15 guide works out to roughly 23% growth. Either way, the guide easily clears the $46.4 billion line I set last time for weekly sales to keep climbing.

Now, the valuation is quite interesting. Annualizing $38.15 gives me $152.60, or about 5.6x earnings. My run rate in September was $115, so earnings power has grown about 33% while the stock went the other way.

When a memory stock gets cheaper as its earnings rise, the market is usually betting that profits are close to peaking. Personally, I think 5.6x bakes in a steeper and faster drop than Micron's SCAs and margins can back up.

Speaking of margins, I said last time that a margin guide near 86% would tell me those SCA floors were doing their job. The guide came in at 86.25%, a small step down from the fourth quarter's 87%.

However, management expects this to be the low point for margins in fiscal 2027, mostly because about $1 billion of extra costs are hitting this quarter, including last year's bigger bonuses that only show up once the chips they helped make are sold.

Micron also expects revenue to grow in every quarter of fiscal 2027, which means a lot more cash is headed its way.

That brings us to Oct. 8, when the board finally put a number on how much of it goes back to shareholders.

A $35.16 Billion Buyback Unlocks on Dec. 9 for Micron Shareholders

On Oct. 8, the board raised Micron's total buyback authorization to $35.16 billion, with repurchases starting Dec. 9, 2026.

That date matters because it marks the second anniversary of the CHIPS Act deal that gave Micron up to $6.1 billion for new plants in Idaho and New York, in exchange for limits on buybacks.

I also like how the board arrived at that figure. It started with the $2.16 billion left over from the old program, added 100% of the $33.2 billion in adjusted free cash flow from the quarter ended Sept. 3, and then subtracted dividends and the CHIPS grants Micron received for capital spending.

That formula also settles my caveat from last time about SCA customer deposits. Since Micron reports those deposits under financing activities, they stay out of free cash flow, which means the authorization was sized off cash the business actually earned. The size doesn't worry me much either.

Last time, I called $20 billion to $30 billion healthy and anything above $50 billion a red flag, so $35.16 billion lands a bit above my comfort zone, but I'm fine with it because it's tied to one quarter of real cash.

For perspective, at $856.49 a share, the program would retire about 41.1 million shares, or about 3.6% of the shares outstanding listed in Micron's latest annual report.

Micron can easily afford it, too, since it ended the quarter with $68.3 billion in net cash, and even after setting aside the $12.7 billion of deposits it will eventually hand back to customers, there's still plenty of room to spare.

That said, the formula does have one weak spot. Buybacks sized off each quarter's cash will be largest when cash peaks, and historically, that's right when memory companies overpay for stock. Today, I'm okay with that tradeoff because of the price, since every dollar spent at 5.6x earnings buys about 18 cents of annual earnings.

Plus, CFO Mark Murphy expects first-quarter free cash flow to come in well above $33.2 billion, so I think the next top-up could be even bigger. Of course, an authorization doesn't force Micron to buy a single share, so I'll still be watching what happens after Dec. 9.

But buybacks work best when earnings keep climbing, and the product that's been weighing on Micron's margins is about to start pulling its weight.

Bull Case: Micron's 2027 HBM Supply Is Mostly Sold at Higher Prices

Micron has already signed deals covering the vast majority of its HBM supply for calendar 2027, at significantly higher prices than a year ago, and those prices could finally fix a problem that's been hiding in Micron's margins.

HBM is currently Micron's lowest-margin product, and it sits inside the Cloud Memory unit, whose gross margin held flat at 83% in the fourth quarter as HBM made up more of its sales. Meanwhile, the Core Data Center and Mobile and Client units each hit 90%.

So for the past year, the faster HBM grew, the more it held Micron's margins back. But now that 2027 HBM is locked in at higher prices, I think that drag turns into a lift, and I don't think the market has priced that in yet.

To put a number on it, I started with Cloud Memory's fourth-quarter revenue of $16.3 billion, or about $15.1 billion for a normal 13-week quarter.

Management only said the margin gap is narrowing, so I looked at two cases. If Cloud Memory closes just half the gap to 90%, it adds about $1.55 of annual EPS after Micron's 15.5% tax rate, and closing it entirely adds about $3.10.

But those figures only cover margins. Growth makes them a lot bigger.

Cloud Memory revenue rose 18% in the fourth quarter, or about 10% after adjusting for the extra week, and at that pace, I think 25% growth from here is realistic within about three quarters. At that size and a 90% margin, gross profit would rise about $4.47 billion a quarter, or about $13.10 of annual EPS.

That adds about 8.6% to the $152.60 run rate and works out to roughly $74 per share at 5.6x. Some of that growth is already baked into the first-quarter guide, so I treat $1.55 as a base case and $13.10 as the best case.

Personally, I don't think the stock gives Micron credit for even the low end.

Better yet, we don't have to hope that growth comes around. HBM4E, the next generation of HBM, is set to start shipping in volume in calendar 2027, right around when Micron's new packaging plant in Singapore starts producing, and that plant is actually running ahead of schedule.

Nvidia Corporation (NVDA) is part of the picture, too. Micron is working with Nvidia on NVHBM, which Micron calls the industry's first custom HBM4E. While Nvidia plans to buy it from more than one memory maker, Micron expects custom HBM to earn better margins than the standard kind.

So if NVHBM takes off, the margin lift I'm counting on could end up even bigger.

Of course, a lot can go wrong between now and 2027. New products like HBM4E rarely ramp perfectly, and Samsung Electronics (SSNLF) and SK hynix (SKHY) are chasing the same customers, so a stumble on either front would push those margin gains further out.

That's why I treat the $1.55 case as my base and anything above it as a bonus.

If it does play out, Micron also ends up less exposed to regular DRAM prices, since more of its sales would come from HBM that's already under contract. And regular DRAM is the part of the market China is now going after.

Bear Case: China's CXMT Targets Micron's 90%-Margin Server Business by Year-End

The threat comes from CXMT, one of China's DRAM makers. At a Shanghai industry conference on Oct. 10, it said it plans to launch a server memory product built on a new, denser chip design by the end of 2026, though it hasn't shared speeds, yields, or volumes yet.

Server memory is where Micron makes its best money, and most of it runs through the Core Data Center unit, which brought in $18 billion in the fourth quarter, or 33% of revenue, at a 90% gross margin.

On top of that, DRAM as a whole made up 73% of revenue, and Micron's own 10-K names CXMT as a competitor, warning that heavy investment from the Chinese government could leave the market with too much DRA