Micron is tech's new margin king as memory crisis pushes company past Nvidia and Meta

As Micron customers try and adjust to a new reality of constantly rising memory prices, investors in the company are enjoying historic profit margins.

Alongside its better-than-expected earnings report on Wednesday, Micron disclosed a gross margin, or the profit left after accounting for the cost of goods sold, of 84.9%, up from 74.9% in the prior period and 39% a year earlier.

That's the highest percentage among all major U.S. tech companies, topping social media giant Meta, which recorded a gross margin in the latest quarter of 81.9%, and AI chipmaker Nvidia at 75%. It's a remarkable jump in pricing power for a company that's long been viewed as producing a commodity.

"Fiscal Q3 gross margin more than doubled from a year ago and was a new company record," CFO Mark Murphy said on the earnings call.

Fresh records are coming fast and furious for Micron, as data center companies gobble up all the memory they can find to meet artificial intelligence demand. Revenue of $41.46 billion in the fiscal third quarter was up more than $20 billion from the prior period, which had been the company's highest in its 48-year history. Net income of $28.24 billion is up over 100% from the previous high, also last quarter.

As of Wednesday's close, Micron's stock is up over 700% in the past year, pushing its market cap well past $1 trillion. It was up another 14% in extended trading.

Nvidia, Advanced Micro Devices and Google need Micron's high-bandwidth memory for their powerful AI processors and surrounding systems. In addition to the rising prices those companies are having to pay due to the memory shortage, Apple and other consumer device makers face increased costs for memory components that also come from Micron and a small set of other vendors.

Apple CEO Tim Cook told the Wall Street Journal, in an interview published last week, that the iPhone maker is gong to have to lift prices to deal with a memory situation he described as "unsustainable."

Micron said on Wednesday that it's striking long-term deals called strategic customer agreements (SCAs) at price levels that would keep the company's margins high. That's a shift for an industry that typically focuses on short-term supply.

"For our SCAs with price bands, the floor price enables a very robust gross margin for Micron, well above our peak quarterly margins in any past cycle," CEO Sanjay Mehrotra said on the call.

Prior to Micron's booming margin, Nvidia was seeing unprecedented increases in profitability as its graphics processing units became the key piece of infrastructure for developing AI models. Nvidia is now the world's most valuable company, with a market cap of close to $5 trillion.

But Nvidia's gross margin peaked at around 79% in early 2024, about six percentage points below Micron's current level. Among the other megacap companies today, chipmaker Broadcom's margin sits at 69.5%, followed by Microsoft at 67.6% and Alphabet at 62.4%.

Across large-cap tech in the U.S., Micron's rival Sandisk is the company with the next-highest margin. In late April, Sandisk reported an increase in its quarterly gross margin to 78.4% from 51.1% in the prior period.

For investors wondering where Micron goes from here, the company is confident that the current economics will hold. It projected a gross margin for the fiscal fourth quarter of roughly 86%, and Murphy said the company expects "the market to remain tight beyond 2027."

Mehdi Hosseini, an analyst at Susquehanna, told CNBC's "Closing Bell Overtime" on Wednesday that it's quite a turn for an industry that's "been out of favor for 30 years since inception"

With "the memory wall playing out, customers have no choice but to pay a premium," said Hosseini, who recommends buying Micron shares.

WATCH: Micron customers have no choice but to pay a premium