DRAM Tighter Than Expected, Micron Maintains Buy Rating

Overview

This is UBS's earnings commentary and model update report for Micron following the latest round of industry research. The core conclusion is that DRAM (particularly High Bandwidth Memory, or HBM) supply and demand are tighter than previously expected, with strong pricing. Although NAND short-term price increases are slightly below expectations, the underlying demand remains healthy. Based on this, UBS has made minor adjustments to Micron's earnings forecasts, which remain significantly above consensus estimates, and maintains the Buy rating with a $1,625 target price. The overall assessment is that Micron's profitability is undergoing a structural re-rating.

Core views

The core of this model adjustment lies in the divergence between DRAM and NAND: DRAM is tighter than expected, while NAND shows short-term noise but retains a long-term positive trend. Specifically, HBM is the largest source of upward revision. Following the latest industry research, UBS found that the supply and demand for HBM4 and HBM4E are actually tighter, with pricing even stronger than prior expectations. This tightness has transmitted downstream—NVIDIA, facing persistent HBM supply constraints, had to de-specify its VR300 product. UBS understands that the first version of VR300 will use 384GB of HBM4 per GPU, with subsequent versions switching to 512GB of HBM4E around Q3 2027, a figure lower than UBS's previous expectation of 768GB. On the surface, this appears to be reduced demand; however, because of the specification downgrade, more VR300 units appear in the supply chain, leading to an increase in overall HBM consumption—industry-wide total HBM consumption for 2027 was raised from 58.7 billion Gb to 61.5 billion Gb. Meanwhile, UBS confirms that memory manufacturers are widening the price premium between HBM and DDR again, raising the industry-wide HBM blended ASP year-over-year growth expectation for 2027 from +67% to approximately +79%, with HBM4E unit prices expected to exceed $30/GB. For Micron, this means HBM ASP year-over-year growth in 2027 is projected at approximately +72% (previously +61%), while Micron's HBM bit shipments remain largely unchanged at approximately 11.65 billion Gb. Regarding DDR (non-HBM DRAM), UBS's assumptions remain unchanged, expecting DDR contract prices (including Long-Term Agreements, LTAs) to rise approximately 20% quarter-over-quarter in Q3 2026. Micron's DDR ASP is expected to rise 20% QoQ in Q3 and 11% QoQ in Q4. A widely concerned issue is the capacity expansion of ChangXin Memory Technologies (CXMT), but UBS believes this concern is exaggerated: although CXMT's DRAM bit supply share is expected to rise from approximately 7% in 2025 to approximately 9% in 2027, it still lags significantly behind leading non-Chinese memory manufacturers in terms of installed capacity, yield rates, and technology. Overall, UBS still expects DRAM to remain in a supply-constrained state at least until Q2 2028. On the NAND front, there is short-term adjustment. The NAND industry contract price (including LTA) quarter-over-quarter growth for Q3 2026 was lowered from a previous expectation of +28% to approximately +20%, and Micron's NAND ASP quarter-over-quarter growth was also lowered from +35% to +23%. This is because server/enterprise SSD demand, while stronger than expected and partially offsetting weakness in smartphones and PCs, saw price growth slightly below prior forecasts. However, UBS emphasizes that the demand backdrop for NAND remains constructive, raising NAND industry bit demand growth for 2026 and 2027 to +23% and +26%, respectively. An important positive factor is that YMTC (Yangtze Memory Technologies) is diverting a significant portion of new capacity toward DRAM rather than NAND—of the total annual wafer capacity increase of approximately 45,000 wafers, about 30,000 are shifting to DRAM—this will extend the NAND price increase cycle. UBS expects NAND prices to peak in Q4 2027 and predicts industry NAND revenue of approximately $300 billion in 2026 and approximately $495 billion in 2027. In terms of Micron's earnings forecast, UBS sets adjusted EPS for fiscal years 2026/2027/2028 at $74.13, $184.89, and $265.65, respectively, all higher than consensus estimates ($73.03, $156.47, $175.92). The 2028 forecast was raised by 15%, primarily due to higher HBM ASP assumptions. More critically, UBS's model shows that Micron's EPS can still maintain levels above $160 by 2029, and cumulative free cash flow will exceed $450 billion by 2028. UBS believes this increasingly resembles a structural re-rating of profitability—this sustainability and visibility should drive the company's valuation closer to broader semiconductor industry multiples.

Analysis framework

UBS's analytical framework follows the typical storage industry supply-demand-price-profitability transmission chain. Starting from the latest industry research, the report separately dissects the supply and demand changes in two sub-markets: DRAM (including HBM and DDR) and NAND. These are then mapped to Micron's ASP, bit shipments, and revenue assumptions, ultimately transmitting to earnings forecasts and valuation. In HBM analysis, UBS adopts a highly insightful approach: customers downgrading product specifications due to supply constraints might seem negative, but by dissecting actual supply and demand balance, it is found that specification downgrades actually increase demand volume—this reflects a deep understanding of the dynamic feedback between supply and demand, rather than simply treating specification changes as one-way shocks. Regarding valuation methodology, UBS anchors on 2029 EPS (approximately $165) rather than recent EPS, reasoning that the 2029 model assumptions already include a mild memory downturn cycle, but Long-Term Agreements (LTAs) provide a floor for profitability, thus better reflecting Micron's true earnings center across cycles. This is a common strategy for valuing highly volatile cyclical stocks—using "cross-cycle earnings" for valuation rather than peak or trough earnings. The report applies approximately 11x NTM P/E (consistent with Micron's three-year historical average) to the 2029 EPS, discounting back to 2028 at an equity cost of approximately 11.8%, resulting in a $1,625 target price.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  Pricing in the memory chip industry is determined by supply and demand balance, especially the marginal impact of the supply side on prices.

  The report separately analyzes the supply and demand conditions for DRAM and NAND, judging that HBM supply/demand is tightening, DDR remains supply-constrained until 2028, and NAND's price increase cycle is extended due to YMTC's capacity shift. This is the basic paradigm of storage industry research.

• Industry/Industrial Analysis FrameworkVolume-price decomposition

  Decomposing revenue growth into two driving factors: bit shipment volume (volume) and ASP (price).

  The report separately tracks changes in Micron's DRAM/NAND/HBM bit shipments and ASP, deriving revenue through separate predictions on volume and price dimensions. This is the standard method for earnings forecasting in the semiconductor industry.

• Competition and Strategy FrameworkCost curve analysis

  Analyzing the relative positions of different manufacturers in terms of technology, yield rates, and costs to determine the competitive landscape.

  By comparing the gaps between CXMT and leading manufacturers in installation, yield rates, and technology, the report judges that the threat of its capacity expansion is exaggerated. This is a typical approach to analyzing cost/technology curve differences in the competitive landscape.

• Valuation MethodPE/PEG valuation

  Using P/E multiples to value cross-cycle earnings of cyclical companies.

  The report selects 2029 EPS (which includes mild downturn cycle assumptions) as the valuation anchor, applying approximately 11x P/E, to avoid distortion of the target price caused by using peak or trough earnings. This is a common idea for valuing highly volatile cyclical stocks.

• Valuation MethodDCF Cash Flow Discounting

  Discounting future earnings to the current point in time using the cost of equity.

  After determining the value corresponding to 2029 EPS, the report discounts the target price back to the 2028 point in time using an equity cost of capital (CoE) of approximately 11.8%, reflecting the handling of time value in valuation.

• Company Fundamentals and Financial FrameworkFree cash flow analysis

  Measuring a company's long-term value creation capability using cumulative free cash flow.

  The report emphasizes that Micron's cumulative free cash flow will exceed $450 billion by 2028, using it as important evidence for the structural re-rating of profitability. Free cash flow is a core metric for measuring a company's true earning power and potential to return value to shareholders.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Micron Technology (MU)

  Core coverage subject of the report, directly benefiting from tighter DRAM/HBM supply/demand and improving NAND demand.

  Strengths

  HBM4/HBM4E pricing stronger than expected; HBM/DDR price premiums widening; LTAs stabilize earnings foundation; 2029 EPS can still maintain levels above $160.

  Weaknesses

  NAND short-term price increases below prior expectations; weakness in smartphone/PC demand drags on NAND.

  Risks

  High volatility in the memory industry; if economic weakness leads to demand destruction, there is downside risk to the target price; unexpected ASP declines could bring additional downside; slower-than-expected technology migration.

• NVIDIA (NVDA)

  Important downstream customer for Micron HBM, downgraded VR300 specifications due to HBM supply constraints.

  Weaknesses

  HBM supply constraints forced downgrading of VR300 specifications, affecting product configuration.

Key data

• 12-Month Target PriceUS$1,625Maintained unchanged, implying approximately 85% upside potential.
• Latest Stock Price (2026/08/07)US$877.57Report pricing benchmark date.
• RatingBuyMaintained.
• FY2026 EPS (UBS Forecast)$74.13Slightly lowered by 1% from $74.55, but still above consensus estimate of $73.03.
• FY2027 EPS (UBS Forecast)$184.89Lowered by 3% from $191.47, significantly above consensus estimate of $156.47.
• FY2028 EPS (UBS Forecast)$265.65Raised by 15% from $231.66, mainly due to upward revision in HBM ASP assumptions.
• 2027 Industry HBM Blended ASP YoYApprox. +79%Previously +67%; HBM4E unit prices expected to exceed $30/GB.
• 2027 Industry HBM Total Consumption61.5 Billion GbRaised from 58.7 Billion Gb.
• Micron 2027 HBM ASP YoYApprox. +72%Previously +61%.
• Industry NAND Revenue ForecastApprox. $300 Billion in 2026, Approx. $495 Billion in 2027Reflects sustained improvement in NAND demand.

Impact & implications

UBS believes that Micron's current earnings growth is not merely a simple cyclical upswing, but rather a process of undergoing a structural re-rating. The key argument is: even if the model assumes memory enters a mild downturn cycle by 2029, Micron's EPS can still maintain levels above $160, and cumulative free cash flow will exceed $450 billion by 2028. This sustainability and visibility of earnings across cycles mean that Micron should no longer be treated as a typical high-volatility cyclical stock, but should receive valuation multiples closer to the broader semiconductor industry. UBS implements this valuation logic at approximately 11x NTM P/E, consistent with Micron's three-year historical average, used to anchor 2029 EPS (approximately $165). In the short term, supply constraints and pricing momentum in DRAM (especially HBM) remain the main catalysts. The downward revision in short-term NAND price increases does not change the long-term positive judgment, and YMTC's behavior of shifting capacity from NAND to DRAM will instead extend the NAND price increase cycle.

Risks

• The memory industry is highly volatile; economic weakness causing demand destruction may lead to downside risk in the target price.
• If ASP declines are more severe than expected, there is additional downside risk to the stock price.
• DRAM and NAND technology upgrades are extremely complex; slower-than-expected technology migration may drag down the company.
• The company's valuation is highly correlated with global GDP; deterioration in the macroeconomic environment is a systemic risk.

What to watch

• Actual quarter-over-quarter growth rates of DRAM and NAND contract prices in Q3 2026.
• Actual pricing and shipment status of HBM4/HBM4E, especially whether they continue to break through $30/GB.
• Evolution of actual HBM consumption after NVIDIA's VR300 specification adjustments.
• Progress in CXMT's capacity ramp-up and yield rate improvements.
• Actual execution of YMTC's capacity shift from NAND to DRAM.
• Trends in changes to the price premium between HBM and DDR.