Just hours after Oracle (ORCL 2.43%) fanned concerns about an AI bubble, investors were singing a different tune thanks to Micron's (MU 3.21%) first-quarter earnings report.
The memory-chip leader crushed analyst estimates in its after-hours report on Wednesday, offering a forceful case that the AI boom is alive and thriving.
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Micron's revenue jumped 57% in the first quarter, accelerating from its previous quarter to $13.6 billion, which was well ahead of expectations at $12.9 billion. Management credited "AI demand acceleration" and its own execution for record Q1 results and its highest-ever free cash flow.
Micron's profits also soared as gross margin expanded from 38.4% a year ago to 56%, and operating margin jumped from 25% a year ago to 45%, its highest rate in seven years. Adjusted earnings per share climbed from $1.79 to $4.78, well ahead of the consensus at $3.94. The stock was up 8% after hours on the news.
The wider margins show the company is benefiting from both higher prices and more advanced chips, including high-bandwidth memory (HBM), which is used for AI computing.
What Micron said about AI
The company reorganized its business to capitalize on the AI boom, and it seems to be paying off. The unit with the most exposure to AI, cloud memory, saw revenue double in the quarter to $5.3 billion, and delivered an operating margin of 55%, showing how big of a driver AI has become.
In fact, Micron's guidance was even more bullish both for itself and the broader AI market. The company forecast HBM total addressable market (TAM) compound annual growth rate (CAGR) of 40% through calendar year 2028, from $35 billion in 2025 to around $100 billion in 2028. In other words, Micron expects the market for AI memory chips to triple over the next three years, and pulled the $100 billion target forward by two years earlier than its previous outlook.
The company's guidance for the fiscal second quarter called for revenue around $18.5 billion, smashing the consensus at $14.4 billion, and it sees adjusted earnings per share jumping to around $8.42, nearly double estimates at $4.71.
That forecast was driven by greater demand than supply for both DRAM, which includes HBM, and NAND, as well as higher prices, lower costs, and a favorable product mix.
What's happening in the AI sector
A bifurcation seems to be taking place in the AI sector. Chip stocks like Micron and Nvidia continue to post blistering results with soaring revenue and profits as they benefit from strong demand for AI chips and limited supply.
However, in the AI infrastructure sector, which includes companies like Oracle as well "neocloud" companies like CoreWeave (CRWV 2.71%) and Nebius (NBIS 3.70%) that are building and operating AI data centers, there's some concern that those companies have gotten out over their skis, and are spending money too fast without enough clarity that it will turn into profit.
Oracle stock has tumbled over the last week as the company's free cash flow turned negative due to its data center buildout, and skepticism mounted that it wouldn't hit the sky-high targets it had given investors earlier in the year.
Nebius and CoreWeave are in a similar predicament. As a result of those growing risks, Oracle stock is now down 46% from its peak a few months ago, while CoreWeave has lost 65%, and Nebius is off 45% from its high.
What those companies are trying to accomplish is different from what chip-makers like Nvidia and Micron are doing. AI infrastructure is a much longer and higher-cost bet than making chips, and there's significantly more risk involved. CoreWeave and Nebius are highly leveraged and unprofitable, and Oracle is moving in that direction to fund its massive land grab.
The opposite is true of Micron, Nvidia, and their chip stock peers, who are seeing record revenue and profits in the AI era, and are calling for more growth ahead.
To the extent that there is a bubble in AI, it seems confined to the infrastructure subsector.
NASDAQ: MU
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What it means for investors
With its blockbuster guidance and soaring growth, Micron continues to look like a smart buy heading into 2026. In fact, the memory specialist looks cheap, trading at a forward P/E of just 13, and analyst estimates will go up following the earnings report, making it even cheaper on a forward basis.
For investors wondering what to do about the volatility in the AI sector, investing in chip stocks like Micron and Nvidia looks like a smart move. Regarding the AI infrastructure stocks, it seems better to avoid them until there's greater visibility that the new business model will lead to profit.
