MU memory supply is sold out through 2028; massive balance sheet cash creates an earnings floor against future cyclical downturns, marking a structural positive shift.

This is a chart updated right after Micron's Q4 fiscal 2026 report just a little while ago, and look at that huge jump in interest and investment income and its effect on earnings per share.

We don't have free cash flow per share yet. The 2026 annual report hasn't been filed yet by Micron, but we're gonna be talking about this. Let's talk about Micron. It was, again, obviously, and as expected, a very good report.

Memory and storage semiconductors remain sold out this year, and the big item from the earnings call was CEO Sanjay Mehrotra and CFO Mark Murphy, they're sold out again for 2027.

And in fact, they said supply will remain tighter actually, in 2027 and 2028 than it has been this year.

So these very high average selling prices on memory and storage semiconductors, DRAM, HBM, and NAND flash, at least as of right now, appear will remain elevated through the next couple of years.

The SCAs they've signed, the three to five-year sale agreements that they've signed with some of their larger customers has bumped up to twenty-six, and that's gonna cover, like, thirty-five percent of revenue through the end of this decade.

I think it's time to say that there is a structural change in this business, and let's talk about why. Micron and the other memory oligopoly companies, the cartel that they have with SK hynix and Samsung are typically in the manufacturing sub-segment of the industry there at the bottom. They are integrated device manufacturers.

And our secular growth trends chart on end market sales cycle for memory that would obviously fall into all categories here, but in particular, the trend for Micron has been very closely following that top line accelerated computing and AI infrastructure, AI data centers, and we're leaving this alone.

Micron is among them, and their revenue growth rate is still amazingly heating up. We'll see if this changes in 2027. We think the growth rate will moderate, not stop, just moderate, but profitability will continue to rise.

They said the first quarter of fiscal year 2027 will actually be the floor for gross margin at around 86, 87%, and it's going to be in sequential growth throughout next year. Because of the higher average selling price for memory, Micron is converting a massive amount of its revenue into cash profit, even after they spend on new property, new fabs that they're constructing, and then fill those fabs up with equipment, especially from the Fab Five, ASML, Applied Materials, Lam Research, Tokyo Electron, KLA Corp, and all the smaller companies.

Even after that, the cash conversion is really incredible. Look at that quarter-over-quarter jump just in cash and short-term investments going from twenty-six billion to forty-three billion quarter over quarter.

But even more dramatically here is the jump in long-term investments, which would especially be things like US Treasuries. Four point one billion last quarter to over thirty billion now, and it certainly sounds like that number will probably double again next quarter.

Maybe they ought to get in touch with the memory companies like Micron and enlist their help here. That is quite the buying spree in US Treasuries in the last three months. And again, this is not going to stop for the foreseeable future, as they're probably going to be buying these up and buying it at a higher interest rate.

This is Micron's interest and investment income, so interest that they receive from holding those longer-term investments, let's say a ten-year treasury. Well, it means lots of interest income, more than a double quarter over quarter in their interest income, which directly impacts both GAAP net profit and free cash flow.

If those long-term investments do double again to fifty, sixty billion, we're looking at Micron being able to generate several billion dollars a year in profit from that balance sheet item alone.

By the end of this year and as we head into 2027, the interest income Micron receives from both the shorter term duration bonds they hold and the cash and short-term investments segment of the balance sheet and the longer term investments they hold, yeah, four, five billion dollars a year in net interest profit is definitely not out of the question.

What does that mean for Micron, and why does this structurally change the business? Well, it's not just about the balance sheet being rich with cash and investments to return to shareholders via a dividend.

It would be great if there was like a special dividend. I'd much prefer that in this particular point in time more than just a dividend increase. I think that could be more appropriate.

Let's see if it happens. That's just my conjecture.

And beyond just the longer-term returns to shareholders, what this does is it creates more of a floor for Micron when there is eventually, at some point, three, four, five years down the road from now, some sort of cyclical slowdown or cyclical downturn in the memory market.

Over the last twenty-plus years, there are plenty of these dips where Micron's earnings per share and free cash flow per share will dip into negative territory for at least a year.

And historically, that is why Micron and other memory companies, and really any semiconductor component supplier, has traded at a relative discount, is because you have to discount the fact that after a good couple of years, you might have a year or two where your profit per share dips into the red, and that kind of flattens out the long-term growth rate, and that has to be discounted in the valuation.

But with all of this balance sheet long-term investment and short-term investments on balance happening, this could potentially lessen the blow for Micron during those periods of time because of the interest and investment income that they are now set to be receiving, billions of dollars per year.

Now, those investments could, of course, also just simply provide a cushion. It doesn't mean that Micron won't have periods where they have to make lots of investments into their manufacturing and the market is going through some sort of cyclical slowdown or downturn, and so maybe they have to eventually dip into that cash and the investment stockpile that they have.

This is significantly different, and it puts Micron into some rarefied air.

I'll jump to just one more set of charts from fiscal.ai and just show you some of the companies that Micron will be joining with a net cash and long-term investment balance well over a hundred billion.

And so that is now where Micron sits, and this is not the same. Yes, there are some similarities, but is not the same as the dot-com bubble because at least as of right now, Micron has not committed exactly what they're going to do with that cash.

And so as it accumulates, this is a really, really sizable war chest.