Morgan Stanley maintains Overweight on Micron and raises target price to $1,200

Overview

This is an earnings review by Morgan Stanley on MICRON TECHNOLOGY INC. The report believes Micron's quarterly results and forward guidance were both significantly above expectations, and management's comments on AI demand, tight DRAM supply-demand conditions, HBM opportunities, and long-term supply agreements improve the visibility of earnings sustainability. The analyst maintains an Overweight rating and raises the target price from $1,050.00 to $1,200.00.

Core views

The core view is that AI-related demand will keep DRAM demand above supply beyond 2027, Micron has improved execution in areas such as HBM, eSSD, and LPDDR5 SOCAMM, and tight supply-demand conditions together with product mix upgrades will drive substantial upside in gross margin and EPS. Although SCA/LTA disclosures have been partly interpreted by the market as imposing price caps, the report believes they are overall beneficial to the sustainability of revenue and earnings.

Analysis framework

The report mainly evaluates Micron stock through comparisons of results versus consensus expectations, management guidance, SCA agreement disclosures, upward revisions to FY26-FY28 financial forecasts, risk-reward scenario analysis, and through-cycle earnings valuation. For valuation, it uses through-cycle EPS of $40 and a multiple of about 30x to derive the $1,200 target price.

Methodology notes

• Valuation methodThrough-cycle earnings valuation

  Determine the target price by multiplying through-cycle EPS by a valuation multiple

  Morgan Stanley raised its through-cycle EPS assumption from $35 to $40 and applied a multiple of about 30x, reflecting AI opportunities and the average valuation of the semiconductor sector, thereby raising the target price to $1,200.

• Financial forecastMorgan Stanley ModelWare

  Internal financial model forecast

  The report states that, unless otherwise noted, metrics are based on the Morgan Stanley ModelWare framework, and it distinguishes between company actuals, Morgan Stanley forecasts, and consensus expectations.

• Market consensus expectationsRefinitiv Estimates

  Consensus expectations data source

  The report uses Refinitiv Estimates as the source of consensus expectations for comparing revenue, gross margin, EPS, and target price distribution.

• Risk-reward analysisBull/Base/Bear case

  Scenario-based target price analysis

  The report provides a bull-case target of $1,650, a base-case target of $1,200, and a bear-case target of $675 to illustrate the impact of changes in AI demand, gross margin, the memory cycle, and valuation multiples on the stock.

Asset mapping & comparison

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

• MICRON TECHNOLOGY INC / US.MU

  Core covered name

  Strengths

  AI demand is driving DRAM and HBM, quarterly eSSD revenue reached about $5bn, SCA agreements improve revenue visibility, and gross margin and EPS forecasts were significantly revised upward.

  Weaknesses

  The stock price has already risen substantially year to date, and the market remains divided on price caps and the durability of the cycle.

  Comparison

  The report believes the current valuation multiple can approach the semiconductor sector average, gaining an AI opportunity premium relative to historical memory cycles.

  Risks

  Rapid price declines, slowing end demand, customer inventory build-up, and intensifying HBM competition.

• DRAM

  Primary earnings driver

  Strengths

  AI and data center demand have pushed supply and demand into a very tight state, and the report expects demand to remain above supply beyond 2027.

  Weaknesses

  The pace of price increases may slow, and if demand is pulled forward by inventory, the cycle could reverse earlier.

  Comparison

  Compared with traditional memory cycles, this cycle is more strongly supported by HBM wafer intensity and AI demand.

  Risks

  Excess customer inventory could lead to a rapid pullback in prices.

• HBM

  AI-related incremental business

  Strengths

  HBM demand increases wafer consumption intensity, Micron's execution is considered undervalued, and it may maintain share in CY26.

  Weaknesses

  It needs to continue proving product performance, capacity, and customer share.

  Comparison

  If share and gross margin performance exceed competitors, this will support a higher valuation multiple.

  Risks

  HBM demand may fall short of expectations or intensified competition may pressure prices.

• NAND

  Agreement-covered and eSSD-related business

  Strengths

  SCA agreements cover about one-third of NAND shipments, and quarterly eSSD revenue reached about $5bn.

  Weaknesses

  NAND pricing and demand are also cyclical.

  Comparison

  Agreement-based coverage improves revenue visibility relative to the traditional spot-driven cycle.

  Risks

  If customers cannot take volumes at the agreed prices, deposits or other remedies may need to be relied upon.

Key data

• RatingOverweightRating maintained.
• Target price$1,200.00Raised from $1,050.00.
• Current share price$1,048.51Closing price on 2026-06-24.
• Implied upsideapproximately 14.5%Estimated based on the target price of $1,200.00 and the closing price of $1,048.51.
• Next-quarter revenue guidance$50.0bnCompany midpoint guidance, above the market consensus of $43.581bn and Morgan Stanley's prior estimate of $43.328bn.
• Next-quarter gross margin guidance86%Above the market consensus of 81.9% and Morgan Stanley's estimate of 85.1%.
• Next-quarter non-GAAP EPS guidance$31.00Above the market consensus of $25.72 and Morgan Stanley's estimate of $26.01.
• FY27 EPS forecast$168.52Raised from $122.05, an increase of about 40%.
• FY27 revenue forecast$266.867bnRaised from $211.737bn.
• SCA agreement coverage20% of DRAM shipments; about one-third of NAND shipments16 agreements are typically for 5 years, while agreements with auto customers are shorter at 3 years.
• Minimum-price RPOapproximately $100bnRemaining performance obligations under 14 agreements calculated at minimum prices.
• Customer financial commitments$22bnIncluding $18bn in cash deposits and $4bn in letters of credit.
• HBM TAM timingabove $100bn in CY27The report says this target is earlier than the previous CY28 expectation.
• FY26 net capex guidanceapproximately $27bnPreviously about $25bn; the report considers the increase moderate.

Impact & implications

The report's impact on Micron is positive overall: near-term earnings upgrades lift expectations for EPS and free cash flow, while long-term supply agreements and AI demand enhance earnings visibility, and commitments to capital returns also help improve the shareholder return narrative. For the industry, if HBM wafer intensity and AI data center demand continue to tighten supply-demand conditions, the memory cycle could be longer and stronger than historical cycles.

Risks

• Memory prices may reverse quickly, especially if end demand weakens while inventories remain high.
• If HBM demand slows or competition intensifies, pricing and gross margins may come under pressure.
• Price caps in SCA/LTA agreements may limit short-term upside in pricing.
• The stock has already risen substantially year to date, and any small negative data point could trigger profit-taking.
• If strong demand in early 2027 mainly comes from customer inventory building rather than real end demand, the memory cycle may turn down earlier.
• CHIPS Act restrictions may affect the company's near-term ability to return cash.

What to watch

• Whether revenue, gross margin, and non-GAAP EPS continue to exceed guidance and consensus expectations over the next several quarters.
• Whether DRAM supply-demand tightness can persist beyond 2027.
• Progress in HBM share, product performance, and customer qualification.
• Whether eSSD revenue scale continues to expand.
• Whether SCA agreement coverage rises from the current approximately 25% of revenue to the target of over 50% of revenue.
• Execution of customer deposits, letters of credit, and non-cancellable contracts.
• Whether capital expenditure remains moderate to avoid excessive capacity expansion that would weaken cycle durability.
• Whether inventory days and end demand begin to diverge.