Micron opens up over 11%, UBS raises target price to double at $1625

UBS Group (UBS), in its May 26 research report, significantly raised its target price for Micron Technology (MU) from $535 to $1,625 and reaffirmed its ‘Buy’ rating; it also raised its earnings per share (EPS) forecast for Micron from 2027 to 2029 to $155, $167, and $117, respectively, from previous figures of $133, $122, and $77.

This target price implies that Micron's stock price will more than double from the pre-market price of around $800, with a corresponding market value reaching $1.8 trillion. Analyst Timothy Arcuri wrote:

“As more signs emerge of AI driving structural changes across the entire memory sector, we believe the market will begin to assign more ‘normal’ valuation multiples to the stock, and Micron’s valuation will continue to be revised upwards.”

UBS pointed out that long-term agreements have been implemented in most areas of the memory industry. Thanks to this, Micron’s EPS for 2027-2029 is expected to continue exceeding $100, with cumulative free cash flow exceeding $400 billion over the same period. UBS abandoned its previous method of sum-of-the-parts and instead adopted a forward P/E ratio of about 15 times the next 12 months, discounting the EPS of around $117 in 2029 to 2028 for valuation purposes.

Long-term agreements reshape memory pricing mechanisms

The core of the report lies in "enhanced" long-term agreements. UBS stated that these agreements add longer collaboration periods, fixed purchase quantity commitments, and some fixed pricing terms to the traditional volume-based model, with an overall term of about 3-5 years, and common structures of “2+3” or “3+2”.

In the DRAM sector, UBS forecasts that 20%-30% of the industry's DDR bit shipments in 2027 will be covered by such agreements. Among them, the coverage ratios for SK Hynix, Micron, and Samsung are 18%, 20%, and 30%, respectively. This part constitutes the fixed price contract volume, with the remaining shipments' prices still fluctuating with the market.

UBS pointed out that long-term agreements bring two core advantages to memory suppliers: one is the significant smoothing of revenue and profit curves, leading to a substantial increase in ROIC across cycles; the other is a significant improvement in visibility of customer demand commitments. Its model shows that after the introduction of long-term agreements, the fluctuation range of DDR prices from peak to trough is reduced by about half compared to the previous period.

Cloud vendors lock in server DDR5 supplies

The main demand comes from hyperscale cloud vendors. UBS believes that these customers have currently locked in about 60% to 70% of the industry's server DDR5 shipments through “enhanced” long-term agreements, providing stable purchase assurance for suppliers like Micron.

In the NAND sector, similar fixed quantity pricing structures are also gradually emerging, with about 20% of shipments expected to shift to such agreements. However, the report states that Samsung, SK Hynix, and possibly including Micron, have a relatively low willingness to commit to additional NAND cleanroom capacity with the same level of certainty as DRAM.

From the perspective of cloud vendors, the core appeal of entering into such agreements is to secure long-term supply guarantees and partially hedge against rising memory material costs. UBS believes that these customers are increasingly willing to pay a certain price premium in exchange for multi-year supply certainty and higher predictability of future deployment economics.

Raise supply and demand and HBM assumptions

UBS extended its expectation of DRAM industry supply shortages to the second quarter of 2028 (previously the fourth quarter of 2027), and NAND supply shortages to the fourth quarter of 2027 (previously the third quarter of 2027).

Regarding HBM, UBS increased its assumption of average selling price year-over-year growth for Micron's HBM from 35% to about 50%, but maintained its HBM bit shipment forecasts for 2026 and 2027 at 7.78 billion Gb and 12.05 billion Gb, respectively. The report expects that Micron, SK Hynix, and Samsung will jointly rebuild HBM pricing premiums in 2027.

After entering the third quarter of 2026, UBS' industry model began to incorporate the impact of long-term agreements, expecting contract price increases of about 8% for DDR and