Micron Market Cap Surpasses 1 Trillion. UBS: Micron Price Target Could Triple. How HBM Giant Navigates the Cycle?

Arcuri believes that LTAs are fundamentally changing Micron's earnings profile. While the memory industry previously had long-term agreements during boom cycles, they typically lasted only one year, locking in supply volume but not price, and lacked binding enforcement. Current LTAs not only lock in future purchase volumes and price floors but also introduce prepayment mechanisms; contract durations span 3-5 years, structured as two years of fixed terms plus three years floating, or three years fixed plus two years floating.

The reason both buyers and sellers are willing to enter into such agreements is that buyers can secure future supply through the contracts, gaining better predictability over future data center deployment costs—which is essential in the current memory shortage. Sellers, facing high capital expenditures for building factories and production lines, particularly need high visibility into future performance as a safeguard.

According to supply chain research, it is estimated that 20%-30% of the DRAM industry's DDR shipments in 2027 will come from these enhanced LTAs. Specifically for manufacturers, LTAs are expected to account for approximately 30% of Samsung's orders, 20% for Micron, and 18% for SK Hynix. Currently, the primary buyers in the memory industry—hyperscale cloud computing providers such as Microsoft (MSFT) , Google (GOOG) (GOOGL) , Amazon (AMZN) , Meta, and other clients have already locked in approximately 60%-70% of the industry's server DDR5 capacity, proactively securing memory supply for several years ahead.

Arcuri stated that based on this change in the earnings model, the market's valuation logic for the company will shift from cyclical stocks to growth stocks, and will start assigning the stock a more "normal" valuation multiple, referencing NVIDIA's approximately 15x NTM P/E ratio, rather than the approximately 5x previously implied by the SoTP model.

Based on an NTM P/E ratio of approximately 15x, UBS anchors the C2029 EPS at about $117, then discounts it to C2028 at a cost of capital of approximately 12%. UBS points out that the model assumes a mild downturn in DRAM at that time, but because LTAs act as a backstop, Micron can still maintain earnings per share of over $100, truly achieving through-the-cycle profitability.

In addition to LTAs, UBS highlighted two other factors that could drive Micron's share price higher: rising unit selling prices for HBM (High Bandwidth Memory) and an extension of the DRAM supply-demand window. UBS noted that the HBM 'Big Three'—Micron, SK Hynix, and Samsung—all intend to re-establish a price premium for HBM entering 2027, aiming to prevent the competitive pressures seen in 2025-2026 from suppressing prices.

Regarding NAND, these three companies are clearly more conservative in committing to new cleanroom capacity, which restricts supply growth and partially eases market concerns about NAND prices peaking prematurely. According to UBS forecasts, the duration of supply shortages for both DRAM and NAND has been further extended: the former to the second quarter of 2028 and the latter to the fourth quarter of 2027.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.