Micron’s Record Margins Are Also Microsoft’s Rising AI Bill

Micron Technology’s gross margin hit 84.9% last quarter, the highest of any major U.S. tech company, and one portfolio manager says that number will eventually shrink the same way Microsoft’s Azure growth rate once did. Nancy Tengler, chief executive and chief investment officer of Laffer Tengler Investments, argues the coming slowdown should not scare anyone off the stock.

Her comparison, first reported by Benzinga’s interview with the portfolio manager, treats Microsoft not just as a metaphor. Microsoft is also the company whose own cost base has been squeezed by the exact memory shortage that built Micron’s margin.

Tengler Makes the Case for Micron’s Margins

Tengler’s pitch starts with a question she poses to herself. Could Micron’s margins fall from 84% back toward 70%? Her answer is that a drop would spook traders without actually breaking the investment case.

Am I concerned that margins could go down to 70%? The market will hate it, but this is what happened with Microsoft during the launch and momentum of Azure. There was a time when Azure was growing at 92%, and the stock continued to outperform for a number of years even after growth began decelerating. That’s the law of large numbers.

Tengler made those remarks describing Micron, not Microsoft, but she is using Microsoft’s own trajectory as the yardstick. Her broader point is about how markets misread deceleration in companies that are still growing, just off a bigger base.

She also flagged something else analysts have started to notice: Micron is no longer selling memory the way it used to. I don’t view it too seriously when I look at a company like Micron, which is now signing three-year contracts and has margins of 84%, she said, describing a shift away from the boom-and-bust pricing that has defined memory chips for decades.

Micron’s Record Quarter Backs Up the Comparison

The numbers behind Tengler’s confidence are real. Micron’s fiscal third quarter, reported June 24, delivered $41.5 billion in revenue, up 346% year over year, alongside a company-record gross margin. CNBC’s coverage of the earnings call quoted Micron chief financial officer Mark Murphy calling it a quarter where margin more than doubled from a year ago and was a new company record.

That 84.9% figure now tops every other major tech name. It is worth seeing next to the rest of the field.

Micron did not just beat its own history, it beat Nvidia at the height of the AI chip boom. Micron chief executive Sanjay Mehrotra told analysts the company’s strategic pricing agreements provide a very robust gross margin for Micron, well above our peak quarterly margins in any past cycle.

Sixteen Contracts, One Hundred Billion Dollars

The mechanism behind that durability is a set of long-term supply deals Micron has never had at this scale before. They are the detail Tengler cited as reason to take the margin story seriously rather than dismiss it as another memory-chip sugar high.

• 16 Strategic Customer Agreements now lock in roughly $100 billion of minimum contracted revenue across large and mid-size buyers.
• $22 billion in upfront customer cash has already been collected as prepayments from hyperscalers securing supply.
• HBM supply for all of 2026 is sold out under multi-year, pre-negotiated pricing, with HBM4 volume already topping $1 billion in a single quarter.
• Q4 guidance calls for $50 billion in revenue and roughly 86% gross margin, up again from the June quarter’s record.

Multi-year, price-banded contracts are new for an industry that has historically lived and died by spot pricing. That structural shift is the reason Tengler compares this moment to Azure’s early growth curve rather than to memory’s usual boom-and-bust pattern.

How Big Is Microsoft’s Own Memory Bill?

Microsoft is not just the comparison point in this story. It is also a buyer whose own numbers show what memory shortages cost the companies on the other side of the trade, since the same AI memory crunch feeding Micron’s margin is inflating Microsoft’s capital budget and squeezing its own profitability.

Microsoft’s fiscal third-quarter gross margin came in at 67.6%, its narrowest since 2022. On the same call, chief financial officer Amy Hood told investors capital expenditures for calendar 2026 would reach $190 billion, and that she expects a $25 billion hit from higher component prices alone. CNBC’s report on that earnings call tied the margin compression directly to rising memory costs across the infrastructure buildout.

Azure is not the only workload absorbing that spending. Microsoft’s cloud also underpins sovereign AI efforts elsewhere, including Mistral’s European buildout, which still runs on Azure despite a separate push for regional AI independence. Every gigawatt of that capacity needs memory, and Micron is one of the suppliers setting the price.

So the same shortage that lets Micron post 84.9% margins is a line item working against Microsoft’s own margin. Tengler’s comparison holds up only if Microsoft, as both precedent and customer, keeps absorbing that cost without slowing its own AI spending.

Azure’s Real Growth Curve

Tengler’s 92% figure for Azure comes from years ago, back when the cloud unit was still small enough to post triple-digit growth. The more useful comparison for judging her thesis is Azure’s recent trajectory, and it has already lived through exactly the deceleration she describes.

Azure growth ran above 45% roughly a year earlier, then slid to 40% in Microsoft’s fiscal first quarter of 2026, dipped to 39% in the second, and climbed back to 40% in the third, reported April 29. Fortune’s account of the second-quarter slowdown described a stock drop tied to that flattening growth, even as revenue and backlog kept setting records.

By the time Azure reaccelerated to 40%, the swing looked less like collapse and more like noise around a still-massive number. GeekWire’s coverage of that rebound noted Microsoft’s AI business alone had reached a $37 billion annual run rate, up 123% from a year earlier. That is Tengler’s law of large numbers, playing out in the same company she is using as her example.

Where the Bull Case Could Crack

Micron’s own capex is climbing to match its margin story, projected near $27 billion for fiscal 2026, funded by the same free cash flow Tengler says makes AI spending a sign of strength rather than a warning sign. She argues that logic applies broadly across mega-cap tech, telling Benzinga that companies generating tens of billions in free cash flow even after heavy AI spending are showing strength, not strain.

Not everyone reads the durability the same way. The disagreement is less about Micron’s current numbers than about whether the contracts survive the next down cycle.

• Bulls, including Tengler, point to 16 signed Strategic Customer Agreements and $22 billion in deposits as evidence the pricing floor is contractual, not sentiment-driven.
• Skeptics quoted across trading desks note the stock already trades above average analyst targets with free cash flow eaten up by capex, pricing in close to zero chance the memory cycle ever turns down.
• Capex researchers at Futurum Group have tracked Microsoft, Amazon, Alphabet and Meta toward a combined $690 billion infrastructure sprint for 2026, spending that has to keep growing for Micron’s demand assumptions to hold.

That is the real tension in Tengler’s comparison. Azure’s growth cooled because Microsoft ran out of data center capacity to sell into, not because customer demand disappeared. If hyperscalers ever pull back on capex to defend their own margins, the same math would apply to Micron’s order book. For now, Micron has guided to $50 billion in fourth-quarter revenue and roughly 86% gross margin, a number that will arrive before investors get much more clarity on which version of the story is right.