Micron: Re-evaluated as an Infrastructure Stock, Not Cyclical?

Expectations for stock price appreciation are growing due to upward revisions in earnings, with a potential increase in profit margins from 86% to up to 89%.

Profit margins are likely to rise from 86% to up to 89%, which could lead to stock price increases if earnings guidance is raised.

Two perspectives coexist: an infrastructure view that the supply shortage will continue as in 2018, and a view that sees products with a 2-year life cycle.

This market perception stems from viewing Micron as an industry with a 2-year product life cycle, contrasting with the infrastructure perspective that a supply shortage like 2018 will persist.

If the memory cycle continues until late 2026, a PER re-evaluation could occur, with the slowdown in EPS growth identified as the peak.

If the memory cycle continues until the end of 2026, a PER re-evaluation is possible, and analysis also suggests that the point of slowing EPS growth could be the peak.

DRAM's gross margin is at a high of 91% compared to previous peaks, with memory margins continuously setting new highs.

NAND also shows high margins, rising to 87% and exceeding the average, which proves the strong upward trend in product prices.

According to a TrendForce report, the HBM supply shortage is expected to continue until 2027, making this the most crucial point.

An 8-stack helps distribute the price increase burden per gigabit.

Despite the price increase per gigabit, an 8-stack offers the benefit of distributing low-power DRAM (LPDDR) costs, making it advantageous for cost efficiency.

Due to delays in new factory operations and initial wafer production difficulties, supply is expected to gradually ease only in 2028. Micron plans to expand factories by increasing capital expenditure from $13.8 billion in 2025 to mid-$40 billion in 2027.

Due to delays in new factory operations and initial difficulties in wafer production, industry supply shortages are expected to gradually ease only around 2028.

Excessive price hikes could risk AI project cancellations. As AI's exponential growth drives memory demand, DRAM prices are expected to hold as long as real value based on automation is provided.

However, excessive price hikes could lead to the risk of AI project cancellations, highlighting the importance of maintaining appropriate prices.

As 5-year long-term supply agreements with hyperscale companies increase, the market is shifting from a cyclical industry to a long-term infrastructure industry. A higher price floor has formed than the peak of the previous cycle, and the key is whether Micron can maintain margins above 80% for the next few years.

It is crucial for Micron to maintain margins above 80% for the next few years, with expectations of high-margin retention even beyond 2028.

The increasing trend of 5-year long-term supply agreements (LTAs) with hyperscale companies also supports this shift.

Samsung Electronics has 70% of its total DRAM capacity contracted until 2031, and the three memory companies are increasing supply by 20% annually.

Most new supply for 2027 has already been sold, and a flattening of the business cycle is expected due to a shift from price-driven growth to increased shipments.

ChangXin Memory (CXMT) is rapidly catching up, with its DRAM market share surpassing 10%.

Current DRAM market shares are approximately 38% for Samsung Electronics, 25% for SK Hynix, and 24% for Micron. CXMT's increased monthly wafer production capacity (35K) signifies a reduction in the technology gap with competitors.

This intensifying competition could act as a constraint on Micron's stock price increase and heighten its burden as a leading company.

Demand from AI companies such as OpenAI, Google Gemini, Microsoft Copilot, Amazon Bedrock, and Meta Llama is surging, with HBM and DRAM-related sales projected to reach $17.5 billion.

Micron is maintaining a high profitability with a return on equity (ROE) of 66%, thus it is expected to secure downside rigidity and maintain an upward trend even during periods of rising interest rates.