Bernstein SocGen on Micron Technology (MU): 'Expecting shortage to sustain into CY28'

Bernstein SocGen Group analyst Mark Li reiterated an Outperform rating and $1,300.00 price target on Micron Technology (NASDAQ: MU).

The analyst commented: "Expecting shortage to sustain into CY28; Tighter supply in CY27 & 28. Micron turns more bullish on cycle and expects supply to become “much tighter” in CY27 and CY28 than in CY26. Despite capacity increase, Micron has no visibility on when shortage will end due to new requests from customers. Capital return likely can support the stock price. Micron reiterated to return all excess cash to shareholders and will increase buyback after Dec 9. Target cash level can be reached by the end of FQ1 27. And with consensus expecting US$$250-300B FCF from then to the end of FY28, it suggests 21-25% yield if all cash beyond the target is returned. More SCAs but only 20% of RPO secured with deposits. SCA coverage is now at 35% of the revenue through 2030 and Micron thinks it will get to ~50% later. If including POs from non-SCA customers, >75% of FY27 output is already committed today. ¾ of the SCA revenues have price commitments, and they amount to US$150B RPO. Financial commitment also rose to US$32B. As it is ~20% of the RPO, we still wonder how enforceable SCAs are & believe future earnings still largely depends on continued shortage. HBM will have higher price but remain less profitable. CY27 HBM supply agreement is largely completed, with significantly higher prices. Micron said that will narrow the margin gap with conventional DRAM, implying HBM will be still less profitable. In line with our model, Micron also believes HBM bit shipment to outgrow the overall DRAM through 2028. FY27 net capex is further raised to >US$50B, with US$25B expected for 1H and more in 2H. Most of the revision is to allow faster clean room schedule in late CY28 and beyond. A bit more cost headwind from bonus. Employee bonus led to higher opex in FQ4 & higher COGS in FQ1, & thus margins below consensus. Headwind will be smaller later & Micron sees moderate price increases to drive the rest of FY27 to have higher gross margin than FQ1."

For an analyst ratings summary and ratings history on Micron Technology click here. For more ratings news on Micron Technology click here.

Shares of Micron Technology closed at $1065.11 yesterday.

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