Strong demand for AI memory drives growth prospects! DA Davidson raises Micron Technology's (MU.US) price target to $3,000

The Zhitong Finance App learned that DA Davidson reaffirmed its “buy” rating for Micron Technology (MU.US) and raised the target price sharply from $2,100 to $3,000. This target price has room for an increase of nearly 176% from the stock's closing price of $1088.00 on Wednesday, which is about 19 times Micron's profit forecast for the 2027 fiscal year.

The reason given by DA Davidson is that the demand for artificial intelligence (AI) -driven memory makes this memory chip manufacturer have good growth prospects. The broker believes that the importance of memory to AI systems is increasing day by day — larger memory capacity allows AI models to process larger amounts of information and run faster. The forecast predicts that memory demand will exceed supply in 2027 and 2028. Analyst Jill Luria said, “Micron is on a growth trajectory for the next 3-5 years, and this is something the market has yet to acknowledge.”

At the same time, Micron's practice of signing longer-term supply agreements with customers should also make its business more predictable. “We would also like to point out that unlike previous cycles, this time the demand comes from the biggest companies in the US — Amazon (AMZN.US), Microsoft (MSFT.US), Google (GOOGL.US), NVDA.US (NVDA.US), and Apple (AAPL.US) — rather than those that frequently default.”

Luria added that the chipmaker's approach of reducing memory usage on each AI processor (so-called “downsizing”, de-specing) does not necessarily weaken Micron's prospects — reducing memory usage may reduce the performance of AI systems, and will ultimately encourage customers to buy more memory.

Micron's performance has exploded! After the performance, the big stars sang a lot one after another

It is worth mentioning that DA Davidson's target price of 3,000 US dollars is not an isolated incident; it happened at a time when Micron announced record earnings reports and many investment banks were actively singing. According to the financial report released by Micron last week, the company's fourth fiscal quarter revenue was $54.23 billion, up 379% year on year, up 31% month on month, setting a record for six consecutive quarters; adjusted earnings per share of $33.42, up more than tenfold year on year; gross margin climbed to 87%, up 2.1 percentage points from the previous quarter. Looking at the entire fiscal year, Micron's total revenue reached US$133.19 billion, 3.5 times the previous fiscal year's record level. Among them, data center revenue quadrupled year-on-year, and DRAM's annual revenue surpassed $100 billion for the first time.

The guidance for the next fiscal quarter also far exceeded expectations: the median revenue guide was $61.5 billion, higher than Wall Street's estimate of $57.57 billion; the adjusted median earnings per share guide was $38.15, higher than Wall Street's forecast of $35.81.

The strength of Micron's financial report is first reflected in qualitative changes in the revenue structure. In the fourth fiscal quarter, core data center business (CDBU) revenue reached US$18 billion, up 56% month-on-month, and gross margin reached 90%, increasing more than tenfold year-on-year. Demand for AI servers was the core driving force.

The data center business currently accounts for 33% of the company's total revenue, while the cloud storage business's revenue is 16.3 billion US dollars, accounting for 30%. Together, the two have exceeded 60% of total revenue. In terms of DRAM, revenue reached 39.8 billion US dollars, up 343% year on year. Shipment volume increased by mid-single digits, but the price increase reached a high single digit, indicating that growth was mainly driven by price rather than simply stacked shipments. This reflects the extreme tightness of supply and demand in the industry. NAND's revenue was US$14.1 billion, up 526% year on year, 42% month-on-month, shipment volume increased by about 10%, and price increased by about 30%, which also confirmed the severity of supply bottlenecks.

Also worth noting is that Micron revealed key information on future production capacity during the conference call: more than 75% of shipments in fiscal year 2027 have already been locked through long-term agreements, the number of strategic customer agreements (SCA) increased from 16 to 26 in the previous quarter, total customer advance payments increased from $22 billion to $32 billion, and remaining performance obligations (RPO) reached about 150 billion US dollars, a significant increase from about 100 billion US dollars in the previous quarter. These agreements are expected to cover more than 35% of Micron's revenue by 2030. About three-quarters of these have determined pricing frameworks, most have set price ranges, and some agreements have even been extended to 2031.

In terms of capital expenditure, Micron announced capital expenditure of approximately US$25 billion for the first half of fiscal year 2027, of which it was about US$11.5 billion in the first quarter and will increase further in the second half of the year. Most of the increase will be used to build new fabs rather than simply purchasing equipment. In terms of the pace of production capacity implementation, the production time of the first Idaho plant was brought forward to mid-CY27, the Singapore plant is expected to produce 2HCY28, the Hiroshima plant's clean room was completed ahead of schedule until the end of CY28, and the New York plant has already broken ground.

Chief Financial Officer Mark Murphy revealed in a conference call that the fourth fiscal quarter generated $44 billion in operating cash flow and $33.2 billion in free cash flow, and promised to return 100% of the excess cash to shareholders in the future.

After Micron announced its latest results, Wall Street giants Morgan Stanley and Bernstein sang a lot one after another. Among them, Damo maintained its “gain” rating for Micron, with a target price of 1,200 US dollars. Damo pointed out that Micron's results for the latest quarter are basically in line with previous expectations. Although the month-on-month improvement has slowed, the strong resilience of the business is still prominent. More importantly, the company extended its qualitative supply and demand guidance to 2028, and anticipates that 2027 and 2028 memory supply and demand relationships will be more tense than this year. The bank believes that this signal may not be fully priced by investors in the short term, but it is consistent with its judgment that the intensity of AI demand will reshape the memory industry.

Damo also believes that as the predictability of Micron's business increases and more memory chips are locked in long-term supply agreements (LTAs), this may become the new normal. However, the bank also warned that the market has absorbed the narrowing of the short-term increase, but the signs that the economy continues to prolong are still clear.

On the supply side, Micron believes that bitwise growth will slow despite the increase in capital expenditure. Damo doesn't fully agree with this. The bank has been expecting bit-element shipments to accelerate next year, as the three major DRAM vendors and Changxin Storage will all have significant wafer increases. Damo estimates that industry-level wafer production capacity will increase 20% year over year next year, compared to only 11% this year.

Bernstein, on the other hand, maintained Micron's “outperforming the market” rating and a target price of $1,300. The bank's core judgment is that Micron is more optimistic about the cycle trend. It is expected that supply in 2027 and 2028 will be “much tighter” than 2026, and despite the increase in production capacity, the company cannot currently see when the shortage will end due to continuous new demands from customers.

However, Bernstein pointed out that after including purchase orders from non-SCA customers, more than 75% of Micron's 2027 output has been locked in; the customer's financial commitment amount has risen to 32 billion US dollars, the vast majority of which is a cash deposit. However, the financial commitment of 32 billion US dollars is only equivalent to about 20% of the remaining performance obligation (RPO) of about 150 billion US dollars. As a result, the bank stated that it “still doubts the enforceability of the SCA” and believes that Micron's future profits will still largely depend on the continuation of the shortage — in other words, in the worst case scenario, those promises without a deposit may not be kept.

Overall, the three organizations are optimistic about Micron's common undertones: the shortage of AI-driven memory will continue until at least 2027-2028, long-term agreements are improving predictability of profits, and data center demand is the core engine. The differences are mainly in valuation. Compared to DA Davidson's target price of up to $3,000, Damo and Bernstein are much more cautious — Damo's supply-side judgment on “the industry's wafer production capacity will increase 20% year on year next year” and Bernstein's “doubts about SCA enforceability” are calm footnotes to the optimistic consensus.