Citi大幅提升Micron target price: HBM prices could continue to rise in 2027

Citi Research released a latest report on May 18, raising the target price for Micron Technology (MU.O) from $425 to $840, based on an expected EPS multiple of 8 for 2027, maintaining a "Buy" rating. As of the close on May 15, Micron's stock price was reported at $724.66, with the target price corresponding to approximately a 16% upside.

The core rationale for Citi's price target increase lies in the following: firstly, Micron is expected to raise DRAM prices by about 40% in the second quarter of 2026, following Samsung's early first-quarter price increase of 100%; secondly, Citi anticipates that the current DRAM upcycle will continue through 2027; thirdly, the supply of HBM remains tight, and HBM pricing is expected to increase further in 2027.

DRAM price increase continues, Citi significantly revises up ASP forecast

Citi also aligns Micron's earnings forecast with the industry judgment of Citi's Macro team, expecting a 200% year-over-year increase in the average selling price of DRAM for 2026 and an 186% increase for NAND. The current DRAM price increase is mainly concentrated in the standard DRAM (non-HBM) sector, driven by supply and demand imbalances.

On the supply side, Citi cites Applied Materials (AMAT) recently raising its outlook for silicon system sales by about 30%, and thus judges that the growth rate of DRAM wafer capacity at the end of 2026 will reach 30%. However, Citi also points out that even so, the existing and planned capacity is still insufficient to cover the increasing demand for AI in 2027, and the construction of additional wafer capacity is still necessary.

The tight supply of HBM is unlikely to change, and there is still room for pricing to rise in 2027

Citi highlights in the report the supply constraints of the HBM market. Due to the 3 to 4 times wafer conversion loss in HBM production, coupled with a significant profit margin difference between HBM and standard DRAM, memory manufacturers currently lack sufficient motivation to expand HBM capacity.

Against this background, Citi expects HBM prices to rise further in 2027. Memory manufacturers are expected to maintain discipline in supply expansion to avoid compression of HBM procurement in AI data centers. Citi also notes that Cisco (Cisco) announced last week that it will reduce the amount of DRAM used in over 20 products, including wireless products, by 50% to cope with the current strong pricing pressure - this trend indicates that high memory prices have begun to trigger downstream customers to actively reduce usage, which is worth the market's continued attention.

Earnings forecast revised upwards, significant increase in gross margin assumptions

Citi raised the EPS forecast for Micron's fiscal year 2027 from $94.55 to $104.56, an increase of about 10%. The gross margin forecast for the fiscal year 2027 was raised from 78.9% to 82.2%, an increase of 338 basis points, which is the main source of this earnings revision. The operating income forecast was raised from $17.2 billion to $18.2 billion, an increase from 55% to 64% year-over-year.

For the complete earnings forecast, Micron's EPS for the fiscal year 2026 is expected to be $58.46, a year-over-year increase of about 687%; the EPS for the fiscal year 2027 is expected to be $104.56, a year-over-year increase of about 79%; for the fiscal year 2028, as the cycle falls, the EPS is expected to be $80.49, a year-over-year decrease of about 23%. In terms of revenue, the fiscal year 2026 is expected to be $110 billion, increasing to $182 billion for the fiscal year 2027, and slightly falling to $171 billion for the fiscal year 2028.

Valuation and scenario analysis

Citi sets the target price of $840 as the base scenario, corresponding to 8 times the expected EPS for 2027, consistent with the valuation range during historical DRAM upcycles.

Under an optimistic scenario, the target price is $1000, corresponding to about a 38% upside from the current stock price, with the core assumptions being continuous improvement in DRAM pricing and product structure, better-than-expected HB