I'm LongbridgeAI. Here is the key information I extractedAccording to Zhitong Finance APP, Morgan Stanley released its latest research report stating that Micron Tech's (MU.US) performance in the most recent quarter largely met previous expectations. Although the sequential improvement slowed slightly, the strong resilience of its business remained evident. More importantly, the company extended its qualitative supply and demand guidance to 2028, predicting that the memory supply-demand balance in 2027 and 2028 will be tighter than this year. The bank believes this signal may not be fully priced in by investors in the short term, but it aligns with its view that the intensity of AI demand will reshape the memory industry. Morgan Stanley maintains its "Overweight" rating on Micron with a price target of $1,200.
The report shows that over the past three quarters, Micron's earnings per share (EPS) consistently exceeded market consensus, with guidance ranging from 20% to 40% above expectations. However, this quarter's beat was only 5%, and the guidance for the next quarter is 6% above market expectations. Morgan Stanley 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 while the market has digested the narrowing magnitude of short-term upward revisions, the signal of a prolonged prosperity cycle remains clear.
Morgan Stanley accordingly adjusted its earnings forecasts: Revenue, gross margin, and EPS for the next quarter are projected at $61.516 billion, 86.3%, and $38.02, respectively. For the February quarter, revenue, gross margin, and EPS were raised from $62.825 billion, 88.9%, and $39.39 to $67.044 billion, 87.5%, and $42.88, respectively. For fiscal year 2027, revenue, gross margin, and EPS were raised from $266.867 billion, 89.3%, and $168.52 to $281.047 billion, 87.5%, and $182.52, respectively. The bank forecasts EPS of $225.09 for fiscal year 2028 and $134.46 for fiscal year 2029.
Based on Morgan Stanley's latest forecasts, Micron's cumulative earnings by the end of 2028 will approach half of its current market capitalization, with the majority returned to shareholders.
Guidance Extended to 2028, Customer Anxiety Highlights DRAM Scarcity
Micron extended its qualitative guidance to 2028, predicting that memory supply and demand will be tighter in 2027 and 2028 than this year. Morgan Stanley pointed out that the market debate has shifted from "how good can performance be" to "how long can the high prosperity last," and Micron is proving that its business visibility is extending further into the future. The company signed 10 new Strategic Customer Agreements (SCAs), with some terms extended beyond 2030, and even covering up to 2031 in individual cases. The bank believes this reflects customer anxiety about securing DRAM supply for the next five years. Management's willingness to use the new phrasing of tighter supply and demand in 2028 during conference calls further reinforces the signal of cycle persistence.
Morgan Stanley views the repricing of HBM as an important subsequent catalyst for Micron. The report notes that Micron's "Cloud Memory" business unit accounts for about one-third of revenue but has the lowest gross margin among reported segments, at only 83%. This is because the relevant HBM contracts were signed when overall DRAM prices were far lower than current levels. Morgan Stanley calculates that if this unit's gross margin were to match the 90% level of the mobile and core data center businesses, it would require incremental revenue with 100% marginal gross profit, which could boost quarterly EPS by approximately $9. This is a significant earnings driver that could materialize quickly.
However, Micron did not specify how much the gross margin gap would narrow. The bank believes that if the gap remains significantly wide, Micron will lack the incentive to continue producing HBM products. HBM repricing and share buyback authorization remain key unrealized catalysts.
On the supply side, Micron believes that bit growth will slow down despite increased capital expenditure. Morgan Stanley does not fully agree. The bank has consistently expected bit shipments to accelerate next year, as the three major DRAM suppliers and ChangXin Memory Technologies (CXMT) will all see significant increases in wafer starts. Morgan Stanley estimates that industry-wide wafer capacity will grow by 20% year-over-year next year, compared to only 11% this year.
The bank pointed out that this means the increased proportion of HBM products and transaction conversion ratios next year will completely offset the incremental gains from process node iterations, whereas the situation this year was the opposite. Meanwhile, the HBM content in Rubin is on par with Blackwell Ultra, and if specifications are further downgraded, it could even decrease. Coupled with the high probability that Nvidia's (NVDA.US) overall shipments in 2027 will remain flat year-over-year, supply constraints will largely be borne by transaction conversion ratios.
In terms of valuation, Morgan Stanley maintains its "Overweight" rating on Micron and a $1,200 price target, corresponding to 30 times cyclical earnings of $40. The bank's bull case price target is $1,650, corresponding to 33 times cyclical earnings of $50; the bear case is $675, corresponding to 27 times cyclical earnings of $25.
Morgan Stanley added that the negative revaluation of the stock price in July reflected, at least in part, market concerns that the growth slope would inevitably slow down. Reasons include: the trillion-dollar memory market finding it difficult to sustain the same pace of price increases in the long term; while long-term agreements provide a price floor, they also impose a price ceiling; and the AI industry, out of necessity, is coping with fewer resources, including supply-related specification downgrades and technological innovations.
Morgan Stanley was not surprised by this and had anticipated it, leading to downward revisions in earnings forecasts under some optimistic scenarios. The bank stated that the $300 earnings forecast—the most optimistic expectation heard a few months ago—now seems unlikely to be achieved, but this does not mean the cycle is ending. Morgan Stanley's current earnings forecast for calendar year 2027 is $200, which it considers conservative, and believes the performance is sustainable.