Micron’s Gross Margin Just Beat Nvidia’s. Nvidia’s Memory Problem Explains Why

In the latest AI hardware market, the dominant supplier is no longer the GPU manufacturer but the company providing limited memory components. Micron Technology (NASDAQ:MU) reported an impressive 84.9% non-GAAP gross margin in its fiscal third quarter, surpassing Nvidia Corp's (NASDAQ:NVDA) 75% adjusted gross margin. The gap is primarily due to surging memory costs for Nvidia's GPUs.

Micron's fiscal third quarter revenue hit $41.46 billion, with adjusted free cash flow at $18.3 billion. The firm has ramped up HBM4 production for Nvidia's Vera Rubin platform, with tight DRAM and NAND conditions projected beyond 2027, although supply gradually improves in 2028.

Under 16 strategic customer agreements, Micron holds $22 billion in cash deposits and related financial commitments, representing minimum prices of $100 billion across remaining terms. Its 36GB HBM4 stack delivers over 2.8 terabytes per second and 20% better power efficiency than its HBM3E.

While Nvidia remains the larger profit engine, its gross-margin reset underscores the need to pay the memory toll. Some Nvidia customers have been warned of server price hikes of over 15% in early 2027. The bear case for Nvidia hinges on cyclicality, with customers advancing cash due to supply shortages, which could normalize margins violently if the shortage ends.

Micron's margins are driven by scarcity, strategic customer agreements, and customer deposits, which could sustain strong utilization and pricing. However, cyclicality risks remain. As of August 14, short interest is modest for both companies at 2.66% of Micron's float and 1.23% of Nvidia's float.