Micron plans $25 billion of first-half capex for a memory shortage it expects to deepen through 2028

Set against what Micron earns, the capex guide is modest. The company made $37.7 billion of profit in the quarter ended Sept. 3 ^[9]. The roughly $25 billion it plans to spend in the first half of the new fiscal year ^[4] is about two-thirds of that one quarter's earnings ^[22]. About $11.5 billion falls in the first quarter ^[4], leaving roughly $13.5 billion for the second ^[14]. Spending rises again in the second half, with most of the increase going to construction, the company said ^[5]. Chief Executive Sanjay Mehrotra said the size of the supply imbalance, especially in DRAM, is why spending has to go up ^[3], and that several fabs are on track to start production over the next two years ^[2].

The forecast moved on the demand side. "Industry demand has strengthened since our last earnings call, and we expect memory and storage supply demand conditions to be much tighter in fiscal 2027 and 2028 than they were in 2026," Mehrotra said on Wednesday's call with analysts ^[1]. In June he had told analysts the crunch would last past 2027, in what Dow Jones reported was a somewhat softer tone ^[10]. "We are focused on our global manufacturing expansions to help address customer demand growth through the end of this decade and beyond," he said ^[6].

The supply contracts are the harder disclosure to read, or rather the two numbers attached to them are. Micron has signed 26 long-term agreements, ten more than in June ^[7][18], with $32 billion in financial commitments ^[7], and Mehrotra said they represent more than 35% of expected revenue through 2030 ^[8]. Those figures cannot measure the same thing. If $32 billion were 35% of revenue through 2030, the whole period would total about $91 billion ^[20], roughly a quarter and a half at the $61.5 billion midpoint of first-quarter revenue guidance ^[15][21]. The $32 billion must be something narrower than contract value, perhaps prepayments or minimum purchases. The company did not say which, and the report does not include contract prices.

The shares slipped 0.8% to $1,057 after hours ^[13], on a quarter in which revenue of $54.23 billion, 4.8 times the year-earlier figure ^[19], beat the $51.33 billion analysts expected ^[11]. Four times the $38.15 midpoint of first-quarter adjusted EPS guidance ^[16] is about $153, putting the stock at about 6.9 times annualized guided earnings ^[17].

Micron's numbers fit a few outcomes. Demand keeps beating the new fabs, as Mehrotra forecasts, and the second-half capex increase gets larger. The fabs start on schedule into slowing demand, and buyers without contracts get relief first. Or contract holders keep their allocations while supply loosens for everyone else, and the two groups of buyers end up paying different prices.

I think the first outcome is the likelier one through fiscal 2027. The company that sees the orders is raising spending, and its customers are signing agreements that reach into 2031 ^[8]. The counter-thesis is the share price: a multiple near 6.9 ^[17] is what investors pay for profits they expect to fall. The view is wrong if customers stop signing. The count went from 16 to 26 in one quarter ^[7], and a flat number at the next call would say buyers no longer fear being short of chips.