Strong AI memory demand drives growth outlook! DA Davidson sharply raises Micron Technology, Inc. (MU.US) price target to $3,000

DA Davidson reiterated its "Buy" rating on Micron Technology, Inc. (MU.US) and sharply raised its price target from $2,100 to $3,000. This target implies nearly 176% upside from the stock's Wednesday close of $1,088.00 and is about 19 times Micron's projected earnings for fiscal 2027. DA Davidson's rationale is that AI-driven memory demand gives the memory chip maker a strong growth outlook. The brokerage believes memory is becoming increasingly important to AI systemslarger memory capacity allows AI models to process more information and run faster. It expects memory demand to exceed supply in both 2027 and 2028. Analyst Gil Luria said: "Micron is on a growth trajectory for the next 3-5 years, and that is the part the market has not yet recognized." At the same time, Micron's practice of signing longer-term supply agreements with customers should also make its business more predictable. Luria said: "We would also point out that, unlike previous cycles, this time demand is coming from the largest companies in the United StatesAmazon.com, Inc. (AMZN.US), Microsoft Corporation (MSFT.US), Alphabet Inc. Class C (GOOGL.US), NVIDIA Corporation (NVDA.US), and Apple Inc. (AAPL.US)rather than companies that frequently default." Luria added that chipmakers reducing memory usage per AI processorso-called "de-specing"does not necessarily weaken Micron's outlook; reducing memory usage may lower AI system performance and ultimately prompt customers to buy more memory instead. Micron's results exploded! Major banks have successively turned bullish after earnings It is worth noting that DA Davidson's $3,000 price target is not an isolated event; it comes at a time when Micron has reported record financial results and multiple investment banks have turned bullish. Micron's earnings released last week showed fourth-quarter revenue of $54.23 billion, up 379% year over year and 31% quarter over quarter, marking a record for the sixth consecutive quarter; adjusted earnings per share of $33.42, up more than tenfold year over year; and gross margin climbing to 87%, up 2.1 percentage points from the previous quarter. For the full fiscal year, Micron's total revenue reached $133.19 billion, 3.5 times the record level of the prior fiscal year, with data center revenue quadrupling year over year and full-year DRAM revenue exceeding $100 billion for the first time. Guidance for the next fiscal quarter also far exceeded expectations: midpoint revenue guidance of $61.5 billion, above Wall Street's estimate of $57.57 billion; midpoint adjusted earnings per share guidance of $38.15, above Wall Street's estimate of $35.81. The strength of Micron's earnings is first reflected in a qualitative shift in its revenue mix. In the fourth fiscal quarter, revenue from the core data center business unit (CDBU) reached $18 billion, up 56% quarter over quarter, with gross margin as high as 90%, up more than tenfold year over year, with AI server demand as the core driver. The data center business now accounts for 33% of the company's total revenue, while cloud storage revenue was $16.3 billion, accounting for 30%; together, the two already exceed 60% of total revenue. In DRAM, revenue reached $39.8 billion, up 343% year over year, with bit shipments rising by a mid-single-digit percentage quarter over quarter, but prices rising by a high-single-digit percentage, indicating that growth was mainly driven by prices rather than simply by stacking up shipments, reflecting extremely tight industry supply and demand. NAND revenue was $14.1 billion, up 526% year over year and 42% quarter over quarter, with bit shipments up about 10% and prices up about 30%, likewise confirming severe supply bottlenecks. Also noteworthy is that Micron disclosed key information on future capacity during its earnings call: more than 75% of fiscal 2027 shipments have already been locked in through long-term agreements, the number of strategic customer agreements (SCAs) increased from 16 in the previous quarter to 26, total customer prepayments rose from $22 billion to $32 billion, and remaining performance obligations (RPO) reached about $150 billion, up sharply from about $100 billion in the previous quarter. These agreements are expected to cover more than 35% of Micron's revenue through 2030, with about three-quarters already having a pricing framework, most with price ranges, and some agreements extending as far as 2031. On capital expenditure, Micron announced about $25 billion in capex for the first half of fiscal 2027, including about $11.5 billion in the first quarter, with a further increase in the second half, most of the incremental spending going to new wafer fabs rather than equipment purchases. On the pace of capacity coming online, first output from the first Idaho fab was moved up to mid-CY27, the Singapore fab is expected to produce in 2HCY28, cleanroom completion at the Hiroshima fab was moved up to late CY28, and the New York fab has broken ground. Chief Financial Officer Mark Murphy disclosed on the earnings call that the fourth fiscal quarter generated $44 billion in operating cash flow and $33.2 billion in free cash flow, and pledged to return 100% of excess cash to shareholders in the future. After Micron released its latest results, Wall Street banks Morgan Stanley and Bernstein successively turned bullish. Among them, Morgan Stanley maintained an "Overweight" rating on Micron with a price target of $1,200. Morgan Stanley noted that Micron's latest quarterly results were broadly in line with prior expectations, and although the quarter-over-quarter improvement slowed, the business's strong resilience remained evident. More importantly, the company extended its qualitative supply-demand guidance to 2028 and expects memory supply-demand to be even tighter in 2027 and 2028 than this year. The bank believes this signal may not be fully priced in by investors in the short term, but it is consistent with its view that the strength of AI demand will reshape the memory industry. Morgan Stanley also believes that as Micron's business predictability improves and more memory chips are locked into long-term agreements (LTAs), this may become the new normal. However, the bank also cautioned that the market has already digested the narrowing of short-term upward revisions, but the signal of a prolonged upcycle remains clear. On the supply side, Micron believes that despite increased capital expenditure, bit growth will still slow. Morgan Stanley does not fully agree. The bank has consistently expected bit shipments to accelerate next year, because the three major DRAM suppliers and ChangXin Memory Technologies will all have significant wafer increases. Morgan Stanley estimates that industry-wide wafer capacity will grow 20% year over year next year, versus only 11% this year. Bernstein maintained an "Outperform" rating on Micron and a $1,300 price target. The bank's core judgment is that Micron has become more optimistic about the cycle, expecting supply in calendar years 2027 and 2028 to be "much tighter" than in 2026, and that although capacity is increasing, the company currently sees no end to the shortage because customers keep raising new demand. However, Bernstein pointed out that including purchase orders from non-SCA customers, more than 75% of Micron's fiscal 2027 output is already locked in; customer financial commitments rose to $32 billion, the vast majority of which are cash deposits. But the $32 billion in financial commitments is only about one-fifth of roughly $150 billion in remaining performance obligations (RPO). The bank therefore said it "remains skeptical about the enforceability of SCAs" and believes Micron's future earnings still depend to a large extent on the continuation of the shortagein other words, in a worst-case scenario, those commitments without deposits may not hold. Overall, the common thread behind the three institutions' bullishness on Micron is: the AI-driven memory shortage will last at least through 2027-2028, long-term agreements are improving earnings predictability, and data center demand is the core engine. The main disagreement is over valuation. Compared with DA Davidson's price target of as high as $3,000, Morgan Stanley and Bernstein are much more cautiousMorgan Stanley's supply-side judgment that "industry wafer capacity will grow 20% year over year next year" and Bernstein's "doubts about SCA enforceability" are sober footnotes worth noting within the optimistic consensus.