Micron Technology Inc (MU): UBS reiterates Buy on Micron as widening memory shortages are expected to extend earnings durability

Overview

This preview assesses Micron's FQ4:26 results and FQ1:27 outlook against a backdrop of tightening DRAM and NAND supply-demand conditions. UBS argues that stronger pricing, durable demand and prospective capital returns should sustain Micron's earnings power beyond the current upcycle.

Core views

UBS argues that Micron's fundamental outlook continues to tighten even as the stock debate has shifted from near-term momentum to the duration of the memory cycle. Its channel checks indicate a widening supply-demand gap into C2027: DRAM fulfillment is expected to remain around 60%, server DDR bit demand to grow about 80% year on year, and server-plus-storage SSD bit demand potentially to grow more than 100% year on year in C2027. Long-term agreements temper the immediate upside from price increases, so UBS expects investors to focus increasingly on demand durability and capital returns. For FQ4:26, UBS forecasts revenue of US$52.4B and non-GAAP EPS of US$32.50, above Micron's revenue guidance of US$50.0B plus or minus US$1B and above Street estimates of US$50.45B and US$31.16, respectively. The forecast assumes gross margin of 87.6%, about 160 basis points above guidance and 250 basis points above the Street. UBS attributes the expected upside primarily to pricing. It models DRAM revenue of US$39.7B, with bits up 3% quarter on quarter and ASP up 23%; DDR revenue of about US$36.2B reflects ASPs up 24%, broadly consistent with its industry contract-pricing forecast of roughly 26% growth. It forecasts HBM revenue of US$3.5B, with bits up 9% and ASP up 10%. NAND revenue is projected at about US$12.7B, with bits up 4% and ASP up 23%, in line with UBS's approximately 23% contract-pricing forecast. For FQ1:27, UBS models revenue of about US$59.3B and EPS of about US$37.04, and considers guidance of US$58B-US$59B reasonable versus Street revenue of US$57B. It expects gross margin to rise about 100 basis points sequentially to 88.6%. While long-term agreements mute blended ASP gains, UBS expects high-single-digit blended ASP growth because roughly 10% quarter-on-quarter open-market price increases should more than offset the contract mix. UBS sees gross margin peaking near 91% in C4Q27E and C1Q28E, with annual gross margins of 85.6%, 90.2% and 89.5% in C2026E, C2027E and C2028E. The report's longer-duration thesis rests on HBM pricing, constrained DRAM supply and a prolonged NAND cycle. UBS estimates C2027 HBM bit shipments of about 11.72B Gb, only slightly above its previous 11.65B Gb forecast. Although it reduces expected memory per GPU for NVIDIA's Rubin Ultra configurations, it expects limited HBM supply to be spread across more GW rack shipments. It also expects a widening HBM-to-DDR price premium, driving Micron's blended HBM ASP up about 76% year on year in C2027, with HBM4 at about US$30/GB and HBM4E at about US$33/GB. For NAND, UBS expects pricing to peak in C3Q-C4Q27, partly because YMTC is directing about 30k wafers per month of annual incremental capacity toward DRAM out of about 45k wafers per month of total additions. UBS incorporates CXMT supply expansion, estimating its DRAM bit-supply share rises from about 7% in C2025 to about 9% in C2027, but considers market concerns overstated because of installation, yield and technology gaps versus leading non-China suppliers. On this basis, UBS expects industry DRAM to remain undersupplied through at least C2Q28. It raises the duration assumptions in its model and forecasts C2027/2028/2029 EPS of about US$212/US$277/US$219, all above current Street numbers. Its F2027 revenue forecast is about US$282B, and expected F2027 capex is about US$51B, while implied capital intensity remains in the high teens. Capital return is an additional part of the earnings-per-share outlook. UBS notes that restrictions on share repurchases related to the CHIPS Act expire on 9 December 2026. It expects quarterly repurchases to start around US$20B in FQ2:27 and ramp toward US$40B-US$50B per quarter exiting F2027, although it does not expect Micron to pre-announce the full scale of this program on the upcoming call. The projected repurchases support UBS's estimate that tangible book value per share exits C2028 near US$360. UBS maintains its US$1,625 price target and Buy rating. The target applies an approximately 8x NTM P/E multiple, reduced from about 11x previously, to C2029E EPS of about US$219 and discounts that result back to C2028 using a cost of equity of about 12.2%, producing a C2028 present-value EPS equivalent of about US$195. UBS uses C2029E because it believes this year better reflects through-cycle earnings power under long-term agreements: its model already assumes a moderate memory downcycle beginning in C2H28, yet annualized trough EPS would still be above the annualized EPS that Micron is likely to guide next quarter. UBS also cites support from roughly 4.5x estimated C2028 tangible book value per share.

Analysis framework

UBS combines industry checks and management commentary with a bottom-up model of DRAM, NAND and HBM bit shipments, ASPs, costs and margins. It compares its quarterly and annual revenue and EPS estimates with company guidance and consensus, then values Micron using forward P/E on a discounted through-cycle EPS estimate, with tangible book value as a supporting reference.

Methodology notes

• Industry AnalysisSupply-demand framework

  Memory supply-demand analysis

  UBS assesses DRAM and NAND shortages through fulfillment rates, bit-demand growth, capacity additions and supplier constraints to explain expected pricing and margin trends.

• Industry AnalysisVolume-price decomposition

  Bit-volume, ASP and cost-per-GB decomposition

  The report separates shipment growth, pricing changes and unit costs for DRAM, DDR, HBM and NAND to build revenue and gross-margin forecasts.

• Valuation methodsP/E and PEG Valuation

  Forward P/E valuation

  UBS applies about 8x NTM P/E to C2029E EPS and discounts the result back one year to derive its target price.

• Valuation methodsPB valuation

  Price-to-tangible-book-value reference

  UBS uses estimated tangible book value per share exiting C2028 as additional support for its price target.

Asset mapping & comparison

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

• Micron Technology Inc (MU)

  Primary covered company; UBS expects memory-market tightness and capital returns to support earnings durability.

  Strengths

  Expected DRAM undersupply, HBM ASP expansion, strong projected gross margins and prospective share repurchases.

  Weaknesses

  Long-term agreements mute near-term blended ASP upside, while the business remains exposed to a later memory downcycle.

  Comparison

  UBS's FQ4:26 revenue and EPS estimates are 3.9% and 4.3% above Street estimates, respectively.

  Risks

  More severe ASP declines, weaker macro demand, slower technology migration and increased supply could pressure earnings and valuation.

Key data

• FQ4:26 revenue estimateUS$52.4BAbove the US$50.0B +/- US$1B company guidance and US$50.45B Street estimate.
• FQ4:26 non-GAAP EPS estimateUS$32.50Above company guidance of US$31.00 +/- US$1.00 and Street EPS of US$31.16.
• FQ4:26 gross margin estimate87.6%About 160 basis points above guidance.
• FQ1:27 revenue and EPS modelUS$59.3B / US$37.04UBS sees possible revenue guidance of US$58B-US$59B and a 100-basis-point sequential gross-margin increase.
• C2027/2028/2029 EPS estimatesUS$212 / US$277 / US$219UBS forecasts are well above current Street estimates.
• C2027 HBM blended ASP growth~76% year on yearSupported by a wider HBM-to-DDR price premium.
• Expected share repurchases~US$20B per quarter initially; ~US$40B-US$50B per quarter exiting F2027UBS expects the program after CHIPS Act-related restrictions expire on 9 December 2026.

Impact & implications

UBS believes the combination of constrained memory supply, stronger pricing, long-term agreements and expected buybacks can make Micron's earnings base more durable than a typical memory upcycle. Its target-price framework explicitly assumes a moderate downturn beginning in C2H28 but still anticipates through-cycle earnings support from long-term agreements.

Risks

• The memory industry is highly volatile and is correlated with global GDP; weaker economic conditions could destroy demand and reduce the price target.
• ASP declines could be more severe than UBS expects as incremental supply is added.
• DRAM and NAND technology scaling is complex, and slower-than-expected technology migration could create downside.
• Faster-than-expected AI adoption could increase memory content in servers and cars, creating upside risk to UBS's estimates.

What to watch

• FQ4:26 revenue, gross margin and EPS versus UBS estimates of US$52.4B, 87.6% and US$32.50.
• FQ1:27 revenue guidance, expected by UBS at US$58B-US$59B, and the direction of gross-margin guidance.
• Open-market memory pricing, the effect of long-term agreements on blended ASPs, and DRAM fulfillment rates.
• HBM pricing and supply allocation, including Rubin Ultra memory configurations and rack shipment volumes.
• The pace of Micron's share-repurchase program after 9 December 2026.