Micron Technology: Amidst an Evolving Debate, the Upcycle Endures
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Despite recent market pessimism triggered by Micron Technology's (MU.O) gross margin guidance, UBS believes the memory super-cycle remains intact and is poised to defy traditional analytical frameworks. Industry checks indicate continued strength in DRAM and NAND pricing, alongside further upside potential for high-bandwidth memory (HBM) pricing.
Hyperscale cloud providers and OEMs are actively negotiating long-term supply agreements. These negotiations include volume commitments, prepayments, and defined pricing bands, underscoring robust demand. While some NAND suppliers remain hesitant to lock in agreements to preserve capacity flexibility, memory manufacturers overall are willing to sacrifice short-term upside in exchange for long-term visibility. This behavior reinforces confidence in the cycle's durability. UBS now projects that supply shortages, particularly for DRAM, could persist through calendar year 2028.
Reflecting these structural tailwinds, UBS has raised its target price on Micron to $535 from $510 and maintains a Buy rating. The firm's updated estimates forecast calendar 2027 earnings per share at approximately $135, significantly above the market consensus of $103. For calendar 2028, UBS projects earnings per share of roughly $120, compared to the consensus estimate of $98. Furthermore, UBS anticipates that within a year, Micron's tangible book value will reach approximately $180 per share, with cash holdings exceeding $100 billion. The target price is underpinned by a sum-of-the-parts valuation, assigning roughly $405 to core DRAM and NAND operations and $132 to the HBM business.