Storage is in short supply or will continue until 2028! UBS raised Micron (MU.US) profits, optimistic about HBM's boom + increased repurchases

The Zhitong Finance App learned that UBS's latest research report provides a forward-looking analysis for Micron Technology (MU.US)'s fourth fiscal quarter (August) of fiscal year 2026 and fiscal year 2027. The core logic points to the storage industry's supply and demand gap continuing to widen, and the market focus gradually shifts from short-term trading momentum to cycle continuity and capital return. UBS maintained Micron's target price of $1,625 and reaffirmed its buy rating. The valuation logic adjusts the forward NTM price-earnings ratio from 11 times to 8 times, anchoring earnings per share for fiscal year 2029, and the LTA agreement establishes profit resilience across cycles.

Performance forecasts

The research report raised Micron's revenue forecast for the fourth fiscal quarter of fiscal year 2026 to $52.4 billion (original forecast of $51.5 billion), and earnings per share to $32.50 (original forecast of $31.94 billion), which were 3.9% and 4.3% higher than market expectations, respectively. Both indicators were higher than company guidelines. The increase in profit was mainly due to improved product pricing; looking at the split business, the DRAM sector expected revenue of US$39.7 billion and HBM's revenue of US$3.5 billion; NAND business revenue was US$12.7 billion. The estimated gross margin for the current fiscal quarter was 87.6%, 160 basis points higher than the company's 86% guideline.

For the next fiscal quarter (November, the first fiscal quarter of FY2027), UBS predicts Micron's revenue guidance range of US$58-59 billion, and gross margin will continue to increase by 100 basis points to 88.86% month-on-month. Looking ahead, the agency raised its earnings forecasts per share for the 2027, 2028, and 2029 fiscal years, respectively, to $184.19, $274.97, and $219.15 (original forecast 184.89/265.65/165.37), which is significantly higher than the agreed market expectations; gross margin is expected to peak 91% between the fourth quarter of fiscal year 2027 and the first quarter of fiscal year 2028, corresponding to gross margin of 85.6%/90.2%/89.5% for the 2026/2027/2028 fiscal year, respectively.

HBM, industry supply pattern

On the HBM side, the estimated HBM bit shipment volume for the 2027 fiscal year is 11.72 billion GB slightly higher than before. Nvidia's new-generation VR300GPU memory specifications were lowered. The first generation product was only equipped with 384GBHBM4. It was upgraded to 512GBHBM4E in the third quarter of 2027, lower than the previous 768GB market forecast, but HBM's limited supply can be distributed to more GW-class server racks to form a hedge. Meanwhile, suppliers continue to raise HBM and DDR premiums. The average comprehensive HBM price is expected to rise about 76% year-on-year in the 2027 fiscal year, about $30/GB for HBM4 and $33/GB for HBM4E.

On the supply side, Changjiang Storage's DRAM bit share is expected to increase from 7% in 2025 to 9% in 2027, but due to installation, yield, and process gaps, the market is overly concerned about capacity expansion; industry DRAM will remain in short supply until at least the second quarter of 2028. Changjiang Storage added more production capacity and switched more to DRAM, lengthening the NAND price increase cycle to a certain extent. The LTA long-term agreement suppresses short-term price increases in spot prices, but provides bottom support for corporate profits.

Capital expenditure, share repurchase outlook

Capital expenditure for the 2027 fiscal year is estimated at US$51 billion, and capital intensity remains low in double digits. Due to the US “Chip Act”, the Micron buyback ban will be lifted on December 9, 2026. Research reports determine that the company will not release a repurchase signal early; it is expected that the repurchase will be initiated in the second quarter of fiscal year 2027, with an initial scale of about 20 billion US dollars/quarter, and is expected to rise to nearly 50 billion US dollars/quarter by the end of fiscal year 2027.

Valuation, Ratings, and Risk Alerts

UBS maintained Micron's target price of $1,625 and reaffirmed its buy rating. The valuation logic adjusts the forward NTM price-earnings ratio from 11 times to 8 times, anchoring earnings per share for fiscal year 2029, and the LTA agreement establishes profit resilience across cycles.

Risk level: Storage has strong cyclical properties. Macro deterioration leads to a decline in demand, product ASP falls more than expected, and there is a downside risk in stock prices; technology iterations are delayed or affect the pace of supply release; the acceleration of AI penetration and insufficient supply may constitute an upward catalyst.