Stifel initiates Micron at Outperform, upgrades Datadog on attractive risk-reward

Investing.com -- Stifel initiated coverage of Micron Technology with an Outperform rating, saying that the memory cycle is entering a multi-year upturn driven by structural demand from artificial intelligence and persistently tight supply conditions.

The brokerage said Micron is positioned to benefit from rising average selling prices (ASPs) and higher margin products as memory becomes a critical bottleneck in AI systems.

“Access to memory has become a key bottleneck in AI racks/systems, increasing demand for more performant, higher bandwidth memory (HBM) solutions,” Stifel said in a note.

With supply expected to remain constrained into 2027, the firm sees scope for sustained pricing strength and margin expansion.

In that context, Stifel expects Micron to capitalize on “significant ASP growth and higher margin products,” forecasting that non-GAAP EPS could rise by more than 275% over the next two years.

HBM was highlighted as a central driver. Stifel said HBM has moved into focus as AI models grow more complex and require faster access to larger data sets. As next-generation chips incorporate more HBM, memory is becoming a larger share of overall AI infrastructure spending.

As the no. 2 player, Micron is expected to see HBM revenue grow 164% in fiscal 2026 and a further 40% in fiscal 2027, with its DDR and QLC NAND products also benefiting from AI-related demand.

The firm flagged several risks to its Micron thesis, including the re-emergence of Samsung as a meaningful HBM competitor, heavy capital spending that could shift value toward equipment suppliers, potential easing in the DRAM supply-demand balance, and the risk that chip vendors design their own base logic dies, clawing back some HBM value.

On valuation, Stifel said Micron shares trade at about 9.7 times its calendar 2026 earnings estimate, modestly below the historical average.

“While valuation increasingly embeds significant growth expectations, we believe shares can continue to work on the back of a multiyear, AI-driven product cycle characterized by tight supply,” Stifel said.

In a separate note, the brokerage upgraded cloud security firm Datadog (NASDAQ: DDOG) to Buy from Hold, citing recent checks that point to another larger-than-typical quarterly beat driven by accelerating core growth and stability in OpenAI-related revenue.

The analysts said valuation appears attractive for a company with underlying core acceleration, though they trimmed their price target to $160 from $205.

Stifel’s more positive stance is also underpinned by evidence that prior sales and marketing investments are gaining traction. Core, non-genAI revenue growth accelerated to about 20% year on year in the latest quarter, while the number of customers spending more than $100,000 rose roughly 16% year on year.

Furthermore, the broker highlighted record new-logo annualized bookings, driven by larger initial deal sizes, and said newer products and go-to-market initiatives should increasingly contribute to growth.

While margins could start 2026 modestly below Street expectations, Stifel believes Datadog can sustain operating margins in the low-20% range as these investments mature.

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