HBM Expansion And LPDDR5X Adoption Will Strengthen Market Position

Key Takeaways

• Increased HBM sales and manufacturing expansion are expected to boost revenue, enhance market share, and align with AI-driven demand growth.
  
• Strategic technology partnerships and investments position Micron for long-term margin improvements and revenue growth in the memory market.
  
• Increased costs and manufacturing challenges, including those from new technologies and competitive pressures, may impact Micron's margins and earnings potential.

Catalysts

Designs, develops, manufactures, and sells memory and storage products in the United States, Taiwan, Mainland China, rest of the Asia Pacific, Hong Kong, Japan, Europe, and internationally.

• Micron's HBM (High Bandwidth Memory) sales are increasing due to higher demand and transition to more complex 12-high stacks, which provides a pricing premium. This is expected to boost revenue and maintain or improve market share.
  
• Micron is ramping up its HBM manufacturing capacity to align market share more closely with its overall DRAM share, anticipating higher revenues in 2026 as the demand for AI-related memory products grows. This expansion is anticipated to enhance earnings and revenue growth.
  
• The transition to LPDDR5X for AI servers and introduction of SOCAMM architecture, particularly in collaboration with NVIDIA, leverages Micron's current strong position in data center offerings and is expected to enhance future revenue and maintain margins through premium product offerings.
  
• The strategic reduction in non-HBM DRAM supply due to the shift towards HBM growth, combined with manufacturing advancements, positions Micron for improved market dynamics, potentially benefiting margins and earnings as overall industry supply and demand balances improve.
  
• Increasing investments in advanced HBM technology and facilities, expected to contribute significantly to revenue in 2027 and beyond, suggest potential for long-term margin improvements and revenue growth as the company capitalizes on multiyear growth opportunities in the memory market.

Micron Technology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Micron Technology's revenue will grow by 13.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.9% today to 23.0% in 3 years time.
• Analysts expect earnings to reach $10.4 billion (and earnings per share of $9.43) by about March 2028, up from $4.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $18.7 billion in earnings, and the most bearish expecting $7.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.5x on those 2028 earnings, down from 22.5x today. This future PE is lower than the current PE for the US Semiconductor industry at 26.8x.
• Analysts expect the number of shares outstanding to grow by 0.92% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.96%, as per the Simply Wall St company report.

Micron Technology Future Earnings Per Share Growth

Risks

• Start-up cost headwinds and increased activity in Idaho and DRAM nodes will increase costs through 2026, potentially affecting net margins and earnings.
  
• Competitive inventories and underutilization in NAND could lead to higher cost inventories, affecting gross margins.
  
• There is a need to ramp up supply rapidly to maintain market share, which may strain existing resources and could impact earnings if not managed well.
  
• Ongoing investment in HBM capacity and ensuring a balance with non-HBM portions may require substantial capital, potentially impacting net margins and earnings.
  
• The transition from DDR4 to DDR5 and other product line updates present manufacturing challenges that could impact the cost structure and gross margins.

Valuation

• The analysts have a consensus price target of $130.071 for Micron Technology based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $200.0, and the most bearish reporting a price target of just $75.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $45.3 billion, earnings will come to $10.4 billion, and it would be trading on a PE ratio of 18.5x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of $94.18, the analyst price target of $130.07 is 27.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.